The First Steps to Creating Paychecks for Life
Today I’m going to give you, the plan sponsor, the secret to turning your company’s 401(k) plan into a paycheck manufacturing company for you and your employees.
As a plan sponsor, suppose you have a retirement plan that has no fees for investments, services, or administration. Let’s also suppose that this plan has the best scoring investment options possible. Some people would say that is the definition of a successful retirement plan. I would argue that and say that there is one key element missing.
What’s missing? Employee engagement! Are your employees contributing to the plan? Are they contributing enough money to maximize their retirement plan to create a paycheck for life? You can offer the best plan imaginable, but if your employees are not engaged and contributing, it will not be a successful retirement plan.
“The perfect plan requires employee participation.”
Before 1974, retirement income was from a pension plan. Employees knew if they worked for the company for 30 years, they’d have a pension plan that would generate an income for the rest of their life.
Pension plans don’t exist anymore. Today your employees must contribute to their retirement plans. If they’re not properly allocating their money in the right investments, and if they’re not adjusting their investments over time, how can they possibly create that paycheck for life? This is where employee engagement is so critical.
ERISA is the law that established the retirement plan industry in 1974. ERISA’s most important rule is something called the “exclusive purpose rule” which states that if you’re a plan sponsor and you establish a retirement plan for the benefit of your participants, you’re doing it for the exclusive purpose of providing benefits to them and their beneficiaries.
My next series of vlogs will focus on how your company can help your employees become more engaged and excited to contribute to their 401(k) to maximize their contributions toward their retirement plan to create that paycheck for life.