This paper presents two retirement plan options for employees to consider: Plan A, a defined contribution plan with individually managed IRA accounts, and Plan B, a defined benefit plan offering fixed, inflation-indexed payments upon retirement. Beyond describing the mechanics and trade-offs of each plan, the paper outlines a comprehensive communication strategy designed to ensure that all employees—regardless of financial literacy—can make an informed choice. The strategy addresses ERISA legal requirements, professional training sessions, written materials, human resources representatives, voting procedures, and feedback mechanisms. Together, these elements are intended to maximize employee understanding and confidence throughout the decision-making process.
The company is instituting a retirement plan as part of its ongoing commitment to its employees. At this stage of the process, two different plans have been identified, and employees are asked to carefully consider which they would prefer. Employees will be asked to read over the different plans and weigh the pros and cons of each. This document provides information about both plans and outlines several critical issues regarding the decision-making process.
The first option, Plan A, is a defined contribution plan. This type of plan involves contributions being withdrawn from employees' pay on an after-tax basis. The reason for this structure is that after-tax contributions reduce the tax burden on distributions in the future (Lambert, 2012). The company will match contributions dollar for dollar as part of the 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 forward. The amount of money withdrawn monthly during retirement depends entirely on the total amount accumulated in the account.
The account itself will be managed by Dewey, Cheatham and Howe Investment Advisors, in consultation with each individual employee. This arrangement exists because employees of different ages have different investment needs, and the system allows every employee to tailor their individual IRA account accordingly. As a result, every employee will earn different returns on their retirement accounts, leading to a potentially high degree of variability. That said, because returns are customizable, younger employees in particular will have the opportunity to earn significantly higher returns than they would under Plan B.
Plan B is a defined benefit plan. Under this plan, a contribution will be deducted from each employee's pay and matched dollar for dollar by the company. These funds will not reside in an individual account; instead, they will be pooled into one collective account. The pooled 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, and that payment will be indexed to inflation. Should there be any shortfalls in the fund's value, the company will be responsible for making up the difference, assuming the fund remains solvent.
There are several elements to the communication plan, but the most important are the content of the communications and the methods used to reach employees. Content will be governed by a number of considerations, including the investment knowledge of the employees and the legal requirements under the Employee Retirement Income Security Act of 1974 (ERISA).
By law, there are several things that must be communicated to employees. Plan information must be conveyed in writing. In this case, full plan information about each option will be communicated, along with a short primer illustrating the highlights, pros, and cons of each plan. The elements that must be communicated per ERISA include the plan rules, financial information, documents of operation, and critical information about the management of the plan (USDoL, 2014). Among the specific components that must appear in the summary plan description are:
In addition, the company must provide information about how the plan is funded. In the case of the defined benefit plan, this includes how any shortfalls will be funded. Beyond the summary plan description, an annual report must be produced outlining the plan's performance over the prior year. Both documents must be made available to employees via the company intranet and in hard copy.
With respect to plan governance, all 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 a breach of duty. The protections in place to ensure the solvency of the plan, including any insurance and any open option positions entered into by the investment advisor, must also be clearly outlined (Investopedia, 2014).
"Training, written materials, and HR representative support"
"Voting logistics, hotline, and post-vote satisfaction feedback"
Starting a retirement plan at a company requires a comprehensive communications plan. There are many different issues that need to be taken into consideration. The communications must convey all necessary information both in legal terminology and in plain language. They must be timely and reach all employees. Feedback mechanisms must be in place so that employees have outlets through which to express their concerns and questions.
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