Retirement and Communication Plan Proposal

Retirement and Communication Plan Proposal

Kayla Levett

HRM324

April 28, 2014

Annette Clark-Davis

Retirement and Communication Plan Proposal

Creating the company's benefits program is important to ensure the plans fit the organizational structure and meet the needs of the employees. As a new business with 150 employees it is imperative to design a varied and comprehensive retirement program that addresses the needs of current employees, attract potential employees, and is affordable for the company.

Qualified plans will "entitle employers and employees to substantial tax benefits" (Martocchio, 2009, p. 3). If there is a plan available that qualifies under the Employee Retirement Security Act of 1974 (ERSIA), then neither party has to pay taxes on contributions within a dollar limit outside of the defined plan. Also, investment earnings are tax free. Participants and beneficiaries do not have to pay taxes on retirement benefits until the funds are received.

There are two types of eligible retirement plans under the ERISA: a defined benefit plan and a defined compensation plan. A challenge of the defined benefit plan is that it can be costly for employers. This is because employer contribution rates fluctuate annually and requirements can be difficult for employers to ensure the funds are accessible for participants and beneficiaries.

The second plan is defined contribution plan. According to the contribution plan, "employers and employees make annual contributions to separate accounts established for each participating employee, based on a formula contained in the plan document" (Martocchio, 2009, p. 7). The plan requires the employer to contribute a set percentage of employees' compensation annually that have opted to join the plan. Based on the benefit and contribution limits, employers are limited to the percentage amount contributed to the defined contribution plan. The company invests funds for the employee. There are several different investment options the company can choose such as stocks, bonds, and market funds (Martocchio, 2009, p. 7). As a new operational and small company, investment options should be the employer's option based upon fiduciaries reports. The defined contribution plans is the best choice for the new company.

This most popular type of defined contribution plan is the 401K. It allows employees to "defer part of their compensation to the trust of a qualified defined contribution plan" (Martocchio, 2009, p. 7). The reason 401K plans are well-liked is because several benefits are presented to the employers and their staff. Several benefits include; income tax is not paid on contributions until withdrawal the funds, employers' contributions are deducted from taxable earnings, and gained investments are not taxed until funds are received.

Profit-sharing distributes money to employees through a pool that is funded by gross company sales (Martocchio, 2009, p. 8). There are different three formulas that can be used to set up the employer contribution percentage.

The first formula is a fixed first- dollar-of-profits formula that uses a specific percentage of either pretax or after-tax annual profits contingent upon the success of a company's goals (Martocchio, 2009). The second formula is a graduated first-dollar-profit formula that shares a specific percentage of the company's profits. The final formula funds profit sharing pools only if profits go higher than the set minimum level but stays below the maximum amount (Martocchio, 2009). Distributions of profit-sharing funds are equally paid out regardless of employee contribution or level in the business, employee's annual salary, or employee contribution (Martocchio, 2009). The best distribution method is to equally pay out employees to promote motivation to reach the company goals and assisting in increase sales and profits because the company is new and trying establish it.

Both retirement plans meet requirements of the ERISA. They allow participating employees to contribute after a year of service and completed work hours. In addition, information about the two plans, such as requirements and plan information, will be communicated in detail to every individual employed with the company. communicating the information about the retirement benefit plans to the employee is essential to ensure they understand the advantages about the investing and contribution options, necessary requirements, plan options, and compliance with the Employee Retirement Income Security Act of 1974 (ERISA). (Milkovich & Newman, 2008)

The first method of communication is to mail information packets to each employee's home address. Each packet will include all plan options accessible, investment options, employee and employer matching contribution amounts, eligibility requirements, and necessary contact information (Milkovich & Newman, 2008). Mailing information packets to the staff members at home allows additional time to read over the different plans, identify questions, and talk about options with family members.

Another communication method is to hold question and answer sessions around the enrollment time to permit workers to speak one-on-one with the company representative. This will help them gain