Employee Benefits

With the competition for job candidates tightening, your company’s employment package should be evaluated to attract the people that will improve your business.

This costs money of course, but some benefits are paid partially by the US Government. With a recent Supreme Court decision, a comprehensive review must be done to ensure you are in compliance with the law. Nothing will drive away prized employees faster than an employer’s trouble with IRS.

401(k) Plans

Mostly everyone knows of, or at least heard of 401(k) plans. Named after the tax code section, these retirement plans are part of a class of define contribution retirement arrangements (DCA).

DCA’s offer the employee an opportunity to divert money from their paycheck, before tax, to investment accounts. Employers typically match some percentage. DCA’s contrast with defined benefit plans, which are the “traditional” retirement plans whereby, participants receive a fixed payment each month. It is usually adjusted for inflation front he date they retire until death.

Defined benefit plans are fading out and only the largest companies offer them since they are very expensive and costly to manage.

DCA plans are easier to manage. Usually they are outsourced to a financial company, such as Fidelity or Charles Schwab. No promises are made to the employee except that the plan will be funded with their contributions and managed according to fiduciary responsibilities. However, a recent Supreme Court decision just raised the bar for the responsibility of an employer to employees for the financial health of the plan.

401(k) plans have always required monitoring by the employer. This is to ensure that the investments in the plans are aligned to the risk of the employees, as well as the cost that the investment managers take from investment returns as compensation.

Although, S. Ct. No. 13-550 (5/21/15) confirmed that employers have a continuing responsibility to monitor fees. This means that if you have a 401(k) plan, or intend to begin one to attract employees, you should be aware of these responsibilities and put processes in place to ensure compliance.

Using Leverage to Reduce Employee Costs

Benefitspro.com, an online magazine which provides news for benefit brokers and professionals, published an article in March 2015 about how companies can lower the costs of investments in retirement plans by negotiating for institutional pricing, which is usually less expensive.

The article also highlights purchase strategies for those sponsors who acquire annuities for participants. Such a strategy can help you fulfill your employer responsibilities.

SHAMROCK vCFO Services in Naperville, IL specializes in helping small and medium size businesses with strategy, taxes, accounting, and financial performance management. Steve Shamrock left big companies to help smaller ones energize the economy.