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The company is instituting a retirement plan as part of our ongoing commitment to our employees. At this stage of the process, we have settled on two different plans, and we need the employees to carefully consider which plan they would prefer. The employees will be asked to read over the different plans and carefully weigh the pros and cons of each. This document will provide some information about the three different plans, and will also outline several critical issues regarding this process.
There are two plans from which to choose. The first, Plan A, is a defined contribution plan. This type of plan involves contributions being withdrawn from the employees' pay on an after-tax basis. The reason for this is that when the contributions are made on an after-tax basis, this reduces the tax on distributions in the future (Lambert, 2012). The company will match the contributions dollar for dollar as part of our benefits package. The contribution level will be set on the basis of historical long-run market returns, with the expectation that these conditions will carry into the future. The amount of money that is withdrawn monthly from the plan in retirement is entirely dependent on the amount of money in the account.
The account itself will be managed by Dewey, Cheatham and Howe Investment Advisors, in consultation with each individual employee. The reason for this is that employees of different ages have different investment needs, and this system allows for all employees to tailor their individual IRA accounts with their individual investment needs. This also means that every employee will earn different returns on their retirement accounts, leading to a potentially high degree of variability in returns. That said, because returns are customizable, younger employees in particular will have the opportunity to earn much higher returns than they would under Plan B.
Plan B. is a defined benefit plan. Under this plan, each employee will have a contribution deducted from their account, matched dollar for dollar by the company. These funds will not reside in an individual account, but instead will be pooled into one account. These funds will be managed by Ponzi, Shyster and Madoff Associates, experts in the management of large retirement funds. Upon retirement, each employee will be paid a fixed amount as outlined at the time of retirement. The payment will be indexed to inflation. If there any shortfalls in the fund's value, the company will be responsible for topping up this value, assuming it hasn't gutted the fund in Chapter 11 at some point along the way.
There are several elements to the communication plan, but the most important are the content of the communication and the methods used to reach the employees. The content is going to be governed by a number of different considerations, including the investment knowledge of the employees and the legal considerations under the Employee Retirement Income Security Act of 1974.
The first thing to focus on will be the legal issues. By law, there are several things that need to be communicated to the employees. Plan information needs to be conveyed, in writing, to the employees. In this case, full plan information about each plan will be communicated, along with a short primer that illustrates the highlights, pros and cons of each plan. The elements of the plan information that must be communicated to the employees per ERISA are the plan rules, financial information, documents of operation and critical information about the management of the plan (USDoL, 2014). Among the precise components that will need to be communicated are the following in the summary plan description are:
When the employee can participate in the plan
How service and benefits are calculated
When the plan becomes vested
In what form are the benefits paid
How to file a claim for benefits
In addition, the company shall provide information about how the plan is funded. In the case of the defined benefit plan, this includes how shortfalls are going to be funded as well. Also, in addition to the summary plan description, an annual report needs to be produced that outlines the performance of the plan in the past year. Both of these documents must be made available to the employees both via the company intranet and in hard copy.
With respect to plan governance, all of the relevant actors must be identified, meaning anyone with fiduciary authority, both within the company and at the investment advisor's office. Plan participants must also be informed of the system for redress, should a person with fiduciary authority be suspected of breach of duty. Also it must be outlined what protections are in place to ensure the solvency of the plan, including any insurance that might have been taken out, and especially any open option positions that have been entered into by the investment advisor (Investopedia, 2014).
Communication of the Plan
As noted, the basics of the plan -- the information that the company is legally obligated to provide -- need to be published (online and in print) and made available to the employees as part of their package of material on this plan. However, most employees are unlikely to be fully conversant with either the legal or investment terminology and concepts presented. That is where effective communication from the company comes into play. The company needs to communicate in a few other different ways. This is important, because the company is spending a lot of money to institute a retirement plan. It is doing so because this is something that the employees wanted. Therefore, it is essential that the benefits of the plan are fully and effectively communicated, even though the audience is assumed to have very little knowledge of finance. To make this happen, there are three different components of the communication plan.
The first component of the communication plan is the training. The training process will be the most expensive and comprehensive component. This involves bringing in professional trainers who are experienced at explaining financial concepts to laypeople. Their role will be to visit the different job sites, and given presentations about the different plans. They will provide information, an explanation of the concepts and terminology and then they will also be able to offer up explanations for the different plans.
The second element of the communication plan will be the written component. This component of the plan will focus on the provision of a package that explains the different details of the plan. The package will feature all of the information that is mandated by law under ERISA, and it will feature prospectus material from each of the prospective managers, in addition to material provided by the company that explains the two options. This explanation will need to be relatively simple, for example using bullet points to convey key concepts like pros and cons. The content must be simplified, but maintain accuracy, especially with respect to issues like performance and risks. The use of simplified language and text will help to reduce the amount of potential confusion among the workers about the different options, by cutting out the jargon and slowing down to explain some of the basic concepts that are critical to them making the right decision.
The third element of the communication plan is to work with the human resources department to ensure that there are employee representatives who are available to work directly with employees to answer their questions. This is important because people might not be able to attend the information sessions, or they might have questions subsequent to those sessions, or have unique issues that need to be raised. The representative will be able to provide additional information and clarity to the employees that will help them to understand the options that are on the table. These representatives will have to be trained themselves, to ensure that the information they are providing is accurate, and they may even need to be compensated for this additional duty. For the most part, however, they will be there to direct employees to the information on the websites or in the documents, and provide clarification on definitions or concepts, rather than to guide the employees on the actual voting.
The voting communication is to be available in writing, at meetings and online as well. This will contain details on the vote, a recap of the options that are being presented, and directions for people to find the additional information that has been produced. The key to this document is mostly to ensure that employees are aware of how the voting will take place, that they will have utmost confidence in the system and that they will be prepared when voting day arrives to make an informed choice.
The final element of the communication plan is the feedback component. Employees need to be able to provide feedback, not just on the plans but also on the process. A hotline will be available, as well as feedback forms online, that will help to…[continue]
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