Required Company Sponsored Retirement Plans - Is it possible?

Will Companies Be Required to Offer a Retirement Plan to Their Employees?

The short answer…maybe!  As part of Obama’s strategy to increase retirement plan savings, legislation to require automatic workplace pensions is underway.  Currently more than half of the work force is not offered employer based retirement plans. This has been growing due to the recent economy and employer cutbacks. In most cases, those who are offered plans are often confused by how to invest their savings resulting in low participation.

In recent years, an automatic enrollment option has been introduced to the market place.  This feature automatically enrolls all employees at a company into their employer sponsored plan, but gives them the option to “opt-out” rather than “opt-in”. Studies have shown that on average, automatic enrollment plans have between a 75 and 90 percent enrollment rate.

The new proposal would require companies who do not currently have a retirement plan to automatically enroll their employees in a direct-deposit IRA account.*  This plan will also require that businesses choose a default investment plan for those individuals who are being enrolled. If you choose to go this route, please consult with a Financial Planner.  Since business owners are not licensed to give financial advice, choosing these investments on your own may lead to more fiduciary liability than you would like to sign up for!

Rather than being forced into a plan, it is a great time to start looking at retirement plan options for you and your company.  What many employers don’t realize is how inexpensive a 401k plan can be.  There are a variety of plans offered from various carriers that have very low expenses, and in some cases have $0 out of pocket cost to the employer.  In addition, since these plans are often actively managed and the investments are being monitored on a regular basis, 401k qualified plans may be more suitable for you and your employees! (If you currently have a plan in place and the funds have not been reviewed recently, you need to find a new broker!)

For more information about this pending legislation, or to find a low cost retirement plan for you and your company, give Guide My Finances a call!

*Companies in business less than two years and firms with 10 or fewer employees will not be required to participate.

Source: www.obama.com