RSM Resources

A company-sponsored retirement plan may be the most importantbenefit you offer your workforce. Not only do these plans give midsizedcompanies a competitive advantage in attracting and retaining topemployees, but they directly influence the long-term well-being of yourworkforce and the larger community. Given how powerfully such plans candefine your organization’s culture and reputation — and given thecomplexities that can come along with managing this benefit — you oweit to yourself and your employees to maximize your plan’s value throughstrategic implementation and thoughtful management.

Researchshows that employee retirement plans can help counterbalance the upsand downs of volatile markets and challenging economic times. In arecent study published by the Employee Benefit Research Institute andthe Investment Company Institute, the average account balance amongAmerican workers who maintained 401(k) accounts from 1999 through 2005grew 50 percent, despite one of the worst bear markets since the GreatDepression.

Account holders saw their average balances climb from almost $68,000 in 1999 to just more than $102,000 at year-end 2005.

"Thedata demonstrate the power of persistence and the impact it has on anindividual’s ability to accumulate sizable gains in a 401(k) account,"says Sarah Holden, an economist and co-author of the study.

While retirement plans tremendously enhance your employee-benefits package, they also require ongoing attention and monitoring.

"Choosinga plan is just the beginning," says Peter Ronza, compensation andbenefits manager for the University of St. Thomas in St. Paul, Minn.,and a member of the Society for Human Resource Management’s nationalpanel on total rewards and compensation. "The plan won’t have anymeaning for your employees or provide any advantage for your company ifit isn’t customized to your specific population. The very first thingyou need to do is sit down with your vendor to tailor the offerings toyour business goals and employee base. All the major players in theretirement plan arena offer a full range of administrative services totheir clients, but you need to be absolutely clear on your expectationsfor how your particular plan will be structured."

To ensure your retirement plan fits your company and employees, keep the following key considerations in mind.

Demand customized service."Service is key, and it will make or break your retirement program,"Ronza says. "This is someone’s financial life on the line, andemployees don’t want to be treated like just another customer. Theyhave to have easy access to information, and they need to feel, on apersonal level, that their retirement plan is responsive to theirquestions and concerns." An employee-friendly plan should provideonline access to accounts and to educational and financial resources,offer customer-service support after hours and in multiple languages,and include on-site informational sessions at your facilities.

Own your role.As the employer and plan sponsor, you have a fiduciary responsibilityto ensure the plan fulfills its obligations and provides employees witha variety of solid investment choices. "No matter how full-service yourvendor is, no matter how easy they make it for you, you must stillactively monitor and manage your retirement plan," Ronza says."Ultimately you are accountable to your employees and to the federalgovernment, and you can’t take a passive role in how your plan is run."

Make it simple.Karen Sanchez, an accountant and business consultant, writes onForbes.com that while 401(k) plans usually offer 15 mutual-fundinvestment choices, creating a broad range of options for employeeinvestors, that level of choice can become overwhelming. "The mosteffective solution," she says, "is to provide preset allocation modelsassembled from the list of available mutual funds in the 401(k). Modelportfolios allow the participants to put their accounts on autopilotand not worry about making changes to their fund allocations. Themodels are periodically rebalanced and cover the spectrum of investors,from conservative to aggressive." Also consider offering life-cyclefunds as part of your plan. These are balanced "funds of funds" thatbecome more conservative in their mix as the employee approachesretirement. Many life-cycle funds have a specific target date for anemployee’s retirement year and automatically recalibrate as that dateapproaches.

Drive participation. The Retirement SecurityProject — a partnership among the Pew Charitable Trusts, GeorgetownUniversity’s Public Policy Institute and the Brookings Institution —reports that adding automatic enrollment to a 401(k) plan boostsenrollment for new hires to 86 percent from 49 percent. With thisapproach, employees are placed in a 401(k) that has predeterminedlevels for employee and employer contributions. If employees don’t wantto participate, they have to actively opt out. The Retirement SecurityProject also writes that workers who agree upfront to graduallyincrease their contributions achieve substantially higher savings ratesover time than their colleagues.

Engage employees."Education and communication are the hardest and most critical piecesof your employee retirement plan," Ronza says. "If employees don’tunderstand the plan, or if they take it for granted, it’s not workingas a retention and loyalty-building tool for your organization." Makesure employees receive regular statements that show how theirinvestments are performing and illustrate how contribution changescould boost their returns. Remember that every employee has a differentcomfort level with money management, so provide materials that clearlydefine financial terms and that either the layperson or expert investorcan easily understand. "If you demystify the process, employees willsee the advantages and get excited about the opportunity you’reoffering them," Ronza says.

Be patient. Ronza advisescompanies not to worry too much in the beginning about enrollmenttargets. "Ultimately, you’d love to be at a 100 percent participationrate, but keep in mind that you’re starting from zero and that there’sa long journey ahead," he says. Focus on incremental, year-over-yeargrowth and don’t be frustrated if you don’t see skyrocketing enrollmentfigures. Employees need time to understand and trust the plan, andconsistent, open communication will help them embrace the program.

"Competitivelyand ethically, it’s important for companies to help their employeessave for the long term," Ronza says. "It’s the right thing to do, andit’s a tremendously valuable way to demonstrate to your people that youare invested in them, both literally in their financial future and asindividuals who are valued by the company."