How can you determine the right employer contribution to a retirement plan?

I have an open discussion with my client and ask a bunch of questions. This helps narrow down the goals for the company and owners and how a retirement plan helps achieve them. The various options can be complex and will likely increase the administrative workload. The resources a company has to allocate to a retirement plan are also key in this conversation.

In my opinion, determining the right employer contribution to a retirement plan involves balancing competitiveness with fiscal responsibility. Consider industry standards, employee expectations, and budget constraints. Aim for a contribution that attracts and retains talent while aligning with the company's financial health.

There are a variety of formulas an employer can implement for their contribution. Plan design is also a factor here. For example, is a Safe Harbor contribution the best option? What impact does that have on the budget and allowing highly compensated employees to maximize the benefit? Or should some of the employer contributions be designed as discretionary to provide more flexibility?

Evaluate the health of your business's finances. If is it feasible for you to maintain a certain level of participation without sacrificing other important aspects. The pursuit of competitive advantages should take a back seat to the preservation of capital over the long run. Investigation of market norms and rival firms' output for comparable positions and regions is required. In order to maintain your business competitive in the market, this will provide you with a rough range to work with. Calculate how much money you might make back if you contributed more. Think about things like higher morale, less employee turnover and better employer branding.

There is no shortage of compliance and legal requirements when offering a plan. Partnering with a retirement plan advisor, not just a general financial advisor, can help in this area drastically. Retirement plan compliance requires different knowledge than traditional wealth management. Discuss with the advisor on how to reduce risk and liability through 3(21), 3(38), and 3(16) services.

Speaking with employees prior to offering a benefit can help shed light on what is most important to them. For example, would offering a retirement plan or lower cost health insurance be more beneficial? Another item to consider is will employees use the plan if an employer contribution is not a component of the plan design?

Gather information on retirement benefits priorities and expectations from employees using anonymous surveys. Get a feel for their comfort level with risk, their ideal contribution rates and the amount of company matching they'd like. Set up focus groups with different types of employees to learn more about their wants and needs. Insights that go beyond straight survey answers can be gleaned from this qualitative data. Think about the salary range and average age of your employees. While older workers may place a higher value on larger contributions, younger workers may place a higher priority on more benefits over immediate retirement funds.

Hiring a retirement plan advisor can be crucial when measuring plan and participant outcomes. Education efforts through a qualified advisor can drive account balances, deferral rates, and overall plan participation. Measure the plan's impact on hiring and retention of employees as well.