Even in a pre-pandemic economy, attracting and retaining top talent was a challenge across industry lines.
A recent Glassdoor survey revealed that four in five employees would prefer new or additional benefits over a pay raise. More specifically, 89 percent of younger employees, those between 18 and 34, would prefer benefits to more money in their paycheck.
While increased health-care insurance was the most valued benefit (40 percent), retirement plan and/or pension ranked fifth, at 31 percent. Flexible scheduling — which has become the norm for many in the current work from home environment — followed retirement savings, at 30 percent. So let’s brush up on The Employee Retirement Income Security Act, and have a brief refresher on the differences between qualified verses non-qualified plans, to make sure you are offering your employees competitive retirement and benefit plans to keep them satisfied.
What is ERISA?
The Employee Retirement Income Security Act (ERISA) is a federal law that was enacted in 1974 to set minimum standards for most voluntarily established pension and health plans. It was established because at the time, state and federal laws didn’t adequately protect employee benefit plan participants and beneficiaries. It requires plan sponsors to provide plan information to participants. It establishes conduct standards for plan managers and other fiduciaries as well as enforcement provisions to ensure that plan funds are protected and that qualifying participants receive their benefits, even if a company goes bankrupt.
Who does ERISA protect?
ERISA covers retirement plans and welfare benefit plans. In FY 2013, ERISA encompassed roughly 684,000 retirement plans, 2.4 million health plans, and 2.4 million additional welfare benefit plans. These plans cover about 141 million workers and beneficiaries and include more than $7.6 trillion in assets. About 54 percent of America’s workers earn retirement benefits on the job, and 59 percent earn health benefits.
Qualified vs Non-Qualified Plans
So, what’s the difference between qualified and non-qualified plans? Qualified plans qualify for certain tax benefits and government protection. Nonqualified plans do not meet all ERISA stipulations.
Qualified plans are the most rigid, as they require a number of guidelines to qualify — including vesting, benefit accrual, and funding restrictions. A few of the most well-known qualified retirement plans, include:
- 401(k) profit-sharing plans: a retirement savings plan offered by many American employers that has tax advantages to the saver. It is named after a section of the U.S. Internal Revenue Code.
- 403(b) plans: a retirement account for certain employees of public schools and tax-exempt organizations. Participants include teachers, school administrators, professors, government employees, nurses, doctors, and librarians.
- Keogh (HR-10) plans: tax-deferred pension plans—either defined-benefit or defined-contribution—used for retirement purposes by either self-employed individuals or unincorporated businesses, while independent contractors cannot use a Keogh plan.
Non-qualified plans leave a more flexible variety of possibilities for employees and are generally used to provide high-paid executives with an additional retirement savings option. However, employees pay taxes on funds before contributing to the plan in non-qualified plans, and typically, an employer is unable to claim these contributions as a tax deduction. Additionally, according to Investopedia, a non-qualified employee benefit plan has no limit on contributions from the employer and requires minimal reporting and filing on the employer’s part, and are usually less money to create than qualified plans. There are four major types of nonqualified plans:
- Deferred-compensation plans: a written agreement between an employer and an employee in which part of the employee’s compensation is withheld by the company, invested, and then given to the employee at some point in the future.
- Executive bonus plans: provide supplemental benefits to select executives and employees. Most commonly, employees under such plans receive a life insurance policy with employer-paid premiums.
- Split-dollar life insurance plans: utilized when the employer purchases a life insurance policy for the employee, and they split the ownership of the policy.
- Group carve-out plans: utilized in order for the employer to carve out the group life insurance of a key executive and replaces it with an individual policy. It allows the employee to avoid excess costs associated with a group plan.
Whether you offer a diverse range of options for your team, or this refresher has given you some inspiration about changes your administration needs to make, it’s always a good idea to reevaluate what your company offers. Staying competitive as we approach 2022 means staying innovative, implementing improvements, and keeping your team motivated and happy to stay successful and reach new goals. If you have any questions about updating your policies, please reach out to our team of dedicated professionals.