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Retirement Plan And Communication Proposal Essay

1239 words - 5 pages

Retirement Plan and Communication Proposal

Ebony Brown

HRM/324
January 24, 2012
Jocelyn Freimark
The design of a company’s benefits program is important to ensure the plans fit the structure of the company and the needs of its employees. Being a new company starting with 150 employees it will be important to design a varied and comprehensive retirement program that will not only address the needs of the company’s current employees, but will also attract potential employees, and be affordable for the company.

Qualified plans “entitle employers and employees to substantial tax benefits” (Martocchio, 2009, p. 3), because neither has to pay taxes on contributions within a ...view middle of the document...

Employers invest funds on behalf of the employee from an array of investment options, such as stocks, bonds, and market funds (Martocchio, 2009, p. 7). Being a newly operational and small company, investment options should be limited to employer choice based on fiduciaries reports.

A popular type of defined contribution plan is a 401K which allows employees to “defer part of their compensation to the trust of a qualified defined contribution plan” (Martocchio, 2009, p. 7). 401K plans popular because of the several benefits offered to employers and employees. First, income tax is not paid on contributions until the employee withdraws the fund; second employers contributions are deducted from taxable income, and finally, gained investments are not taxed until a participant’s funds are received.

Profit-sharing is used to distribute money to employees through a pool that is funded by gross company sales or another basis (Martocchio, 2009, p. 8). One of three formulas can be used to establish employer contribution percentage. A “fixed first- dollar-of-profits formula uses a specific percentage of either pretax or after-tax annual profits contingent upon the success of a company’s goals” (Martocchio, 2009, p. 9), a graduated first-dollar-profit formula shares a specified percentage of the company’s profits, and finally the profitability threshold formulas fund profit sharing pools only if a profits go above a set minimum level, but below a maximum amount.

Allocation of profit-sharing funds can be equally paid out regardless of employee contribution or level in the company, based on employee’s annual salary, or based on employee contribution. Being a new company with a small number of employees, the best allocation method may be to equally pay out employees to promote employee motivation to reach the company goals, thereby assisting in increase sales and profits.

Both benefit plans meet requirements of the ERISA by allowing all employees to contribute after a year of service and completed work hours. In addition, information regarding these plans, such as requirements, plan information, etc. will be communicated thoroughly to every employee.

When good benefit plans are in place, communicating the information to the employee is important to ensure their understanding of investment and contribution options from the employer and the employee, employer and employee requirements, plan options, and to comply with Employee Retirement Income Security Act of 1974 (ERISA) requirements. Several types of communication methods can be used to distribute, inform, and educate employees on company benefit and retirement plans.

The first method of communication is mailing information packets to each employee’s home. Information packets should include plan options available, investment options and information, employee and employer contribution amounts, eligibility requirements, important dates, and necessary contact...

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