Group Retirement Plans: How to build a successful program?

Group Retirement Plans

Group retirement plans are used by many employers to help their employees save for retirement. A group plan is a type of retirement plan that an employer offers to employees through a trust or insurance company. This allows the employer to offer tax-deferred contributions, often matching the employee’s investments, and an automatic savings plan for all workers in addition to other benefits. This can include disability coverage, death benefits, and money for dependent children of those who die before time for withdrawal.

Retirement plans have the potential to help address some of the most pressing concerns faced by America’s workforce, particularly with respect to the middle class and lower class workers who have historically had difficulty saving enough for retirement. While they are regularly used in high-income groups, they are not typically used by businesses with lower income.

The Social Security Administration estimated that the number of part-time workers (defined as employees covered under a retirement plan who are employed fewer than 30 hours per week) increased from 11.4 million in 1976 to 16.9 million in 2004.

Group retirement plans are often used by employers to help their employees save for retirement, but with over 16,600 plan sponsors currently providing this benefit, plans can be difficult for many small businesses to set up and administer on their own. The IRS has promoted group retirement plans as a “best business practice” that small employers can utilize to help their employees save for retirement.

How to build a successful Group retirement plan?

1. Know your retirement risks: Can you afford to pay for the plan? Is there a future liability that you need to cover? Perhaps the employees will not contribute enough to cover set-up costs, establish the plan and administer it. For self-funded plans, can you afford to take the risk to fund the plan fully? Make sure you know your costs and rewards in order to be able to move forward with a retirement plan.

2. Make a business case for the plan: Clearly explain why you are offering the plan and what it does for employees and the employer. Also clearly define all benefits, including any incentives for participation.

3. Decide who will participate: Perhaps you have limits on how much money each employee can contribute or whether certain classes of workers are eligible. Decide who is eligible and what benefits they will receive.

4. Set up a plan: Choose your company to administer the plan, such as an insurance company or a trust company. Typically, these companies will offer assistance with set-up and maintenance of the plan to make it easier for you. Depending on your specific plan, you may have additional legal requirements to follow.

5. Communicate how employees can participate: You can offer the opportunity to contribute through payroll deduction or by receiving pre-tax contributions from their paychecks into the retirement plan account. They may need to fill out paperwork when they first enroll; this will vary by company but should be ready before enrollment begins.

6. Withhold contributions and match the employee’s contributions: You can typically do this automatically through payroll deduction, which is often best for your employees and means you don’t have to worry about funding it every month. You will need to decide how much money you want to contribute as a match and also how often this will happen, such as every paycheck or once a year. You will then need to make sure that money is deposited into the retirement plan account.

7. Communicate about withdrawals: You can communicate to employees about when they can begin to make withdrawals from the plan and what portion of the withdrawal is taxable.

8. Monitor and update: In addition to being responsible for administering the plan, you will need to monitor assets and liabilities as well as report all information required by law in a timely manner, such as certain reports for taxes or insurance companies.

9. Many employers offer group retirement plans through a trust or insurance company rather than through their own 401k department. This can save time and money and allow the employer to focus on their business. However, in order to ensure that the plan is operating as it should be, employers should understand how the plan is administered. Many plans are self-funded which means that the employer will be taking on some of the risk for funding. Employers should find out about how this happens and how it affects their own finances as well as what benefits they will get from participating in such a program.

10. An important part of any retirement plan is ensuring that employees know about it, enroll and contribute to it on time. Employers should offer clear communications about your plan and the benefits that are associated with it. It is important to ensure that employees understand how their employer will make contributions and how they can contribute to their own retirement.

It is also important to communicate with employees about when they can start withdrawing money from their retirement plans. This is particularly important if there are age requirements related to minimum distributions or if you have a Roth 401k plan which requires that withdrawals begin at age 70 ½. To learn more about the details of federal rules regarding employee benefits, visit our article on 401k rules

Advantages for a group retirement plan

There are many benefits of a group retirement plan for employers and employees. Some of the most common include:

  • Administration is cheaper than a standalone plan. By partnering with an insurance company or trust company, you can limit your administration costs and focus on your core business. A trusted partner will also ensure that this cost benefit is passed on to employees through lower premiums and lower administration fees.
  • Lower costs: Many employers will be able to save money by using a trust company as their administrator rather than an insurance company or other employee benefit provider such as Thrivent Financial to provide their retirement plans. Trust companies may have fees that are lower than their competitors while providing the same level of service.
  • It can be complicated. Many groups that are offered these plans often have multiple classes of employees, each with their own set of plan rules and benefits. It is important to allow the plan administrator enough time to ensure that all the necessary information is provided to employees as well as members.
  • Year-round contributions: By offering a retirement option through a group plan, you will be able to encourage your employees to contribute year round rather than waiting until they receive their annual bonuses or other specific opportunities in which they may make contributions. Additionally, if your company offers matching contributions, you will be able to get even more money out of your employees’ pockets by encouraging them to contribute more than just a regular salary contribution.
  • Automatic contributions: If you have large bonuses or other distributions, automatic payroll deductions for retirement plan contributions can help employees save for their future. For example, if you offer a $5,000 bonus to employees every year, you could provide an incentive to contribute $1,250 of that through automatic payroll deductions each year that can be invested in the plan.

Final Thoughts

A group retirement plan can offer many benefits to both employers and employees, including easier administration while providing employees with another way to save for their futures. While using a trust company or other administrator can help to keep costs down, it is important to focus on the quality of your administration partner in order to ensure that the savings are passed on to your employees.


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