The state of the economy can have a huge impact on your retirement planning. When you are in an upswing, it is easy to feel confident about your future and plan for success. However, when things go south, there is never enough money to make it through another day, let alone enjoy your golden years.
Since the recession, many Americans have been left struggling to provide for their future. In particular, with 401ks and IRAs being underfunded and Social Security not providing enough of a safety net, it’s no wonder that retirement seems like an impossible goal. As a result, retirement benefits provided by employers have become a critical component of Americans’ financial security.
A recent study by Pew Research Center found that some 60% of Americans say they are behind in saving for retirement. However, one thing employers can do is to help us provide better benefits packages for employees.
Here are five factors affecting employer-provided retirement benefits which you should consider:
The Length of Time You Work at Your Company
The longer you work at a company, the more likely your employer will offer retirement benefits. The reasoning for this is that companies know they will have an employee around long-term, so offering them a benefit like retirement savings makes financial sense.
According to Deloitte’s 2017 survey of U.S.-based employees, only 31% of respondents work at companies with a “retirement plan waiting period.” This means that the majority (69%) of US workers can enroll in their employer-sponsored retirement plans immediately after starting employment.
The Amount of Money You Make Per Hour
The higher your income, the more realistic it is to contribute more money towards your retirement. This means you will have a larger cushion of money in your retirement fund and can achieve this at a relatively faster rate than someone who is earning less.
Whether or Not the Company Offers Matching Contributions
Some employers provide matching contributions if they offer a retirement plan, but not all companies do this. If the employer does provide a match for your contribution, it’s an excellent reason to contribute through that company. Even small matches can make a big difference in your overall savings amount over time. However, many workers are not aware of this or don’t take advantage of this benefit.
Whether Firms Offer Any 401(k)-Type Plan at All
401(k) plans are considered employer-provided retirement benefits. However, not all employers offer 401(k) programs; some may only provide traditional pension plans.
If your employer offers a 401(k) plan, then your employer may contribute to it. This means that your contribution to your 401(k) plan is through a salary reduction, reducing your taxable income. For example, if you earn $50,000 per year but contribute 15% or $7500 to a 401(k), then the income tax you pay will be reduced by an equivalent amount since it’s treated as pre-tax money. As explained in this article, high-income individuals can also leverage defined benefit plans for small business owners to save on taxes.
State laws are constantly changing, and this can affect employer-provided retirement benefits.
Employers should be aware of these changes as they are happening to ensure that their employees’ 401(k) plans are up to date with current regulations at all times. The following factors impact whether a state has restrictions on employers or employee contributions:
- Employer size;
- Amount of employer contributions;
- Employer age limit for employees; and
- Minimum retirement ages.
Each state has its laws regarding these factors, but most have restrictions in at least one or two areas. For example, some states do not allow employers to contribute more than a certain amount annually into an employee’s 401k plan.