Different players having varying responsibilities participate in the administration of a workplace retirement plan. Since the 1978 launch of the 401(k) pension plan, employers’ responsibility for their employees’ welfare has been diluted. As a result, the greatest responsibility has been placed on individual employees. Since creating the 401(k) program, employees have a greater say on their pension welfare. According to Vaughan and Vaughan (2014), the 401(k) initiative creates a profit-sharing plan in which employees exercise individual decisions to receive or have their contributions be deferred. As Vaughan and Vaughan (2014) further expound, in practice, employees opt to contribute a fraction of their salary into the profit-sharing scheme by instructing their employers to pay the defined part of their income on their behalf. Illustratively, the employees are responsible for instructing their employers to either make the contributions or defer them.
The 401(k) allows employees to exercise discretion over their pension plans. While the importance of pension cover has grown substantially, it is unfortunate that many employees opt not to participate in the employer-sponsored schemes. While an employer might invoke the 401(k) plan and defer some of the employee’s salary for contribution, the final say is further given to the individual employee. PPA-2006 directs that “The employer must give proper notice to employees who are automatically enrolled, including notice of their right to opt-out and an explanation of how the contributions will be invested if the employee does not choose an investment option” (Vaughan &Vaughan, 2014, p.322). In other words, while the employers may enroll their employees on the panned pension plans, the employees could choose not to participate out of their own volition. Besides, employees have a bigger say on how their contributions could be invested. It is up to the employees to instruct their employers on the initiatives they deem appropriate for their pension investments. Social security benefits should be considered in the retirement planning process. Although the social security system faces challenging financial difficulties, safeguarding employees while planning for retirement is imperative. Employees should be protected from lost claims that could arise from employment termination before retirement. In this case, benefits accruing under vesting requirements should be considered in the retirement planning process. Vesting allows employees affected by job termination before retirement to access their benefits (Vaughan & Vaughan, 2014). Based on this benefit structure, the employee is protected from the impact of job loss that could otherwise limit their claims to pension benefits. Besides the vesting requirements and associated benefits, social security benefits under the permitted disparity should be considered in the retirement planning process. The permitted disparity is valuable to employee’s benefits claim because it permits “the employer to provide higher benefits at higher compensation levels” (Vaughan & Vaughan, 2014, p.325). In this case, eligible participants get higher compensation above the taxable wage base provided in their social security tax level. Another social security benefit which is critical and should be accounted for while planning for retirement includes the preretirement death benefit. This benefit is beneficial because it provides social security to the survivors of the deceased (Vaughan & Vaughan, 2014). For instance, a parent may die, leaving behind young children or a mortgage burden. The preretirement death benefit will help offset some of the financial burdens for the survivors of the deceased parent. Finally, disability benefits should be accounted for in the retirement planning process. While some pension programs allow for the contingency of permanent or total disability to the employee, it should be included in the retirement planning to protect the participant from claim losses that could accrue from disability.
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References
Vaughan, E. J., & Vaughan, T. M. (2014). Fundamentals of Risk and Insurance. 11 Ed. Wiley.
