Why 401(k) Plans Fail

RMC Group is a proponent of all types of qualified retirement plans; we have been designing, implementing and administering pensions for nearly fifty years. However, we have witnessed a trend regarding defined contribution plans, specifically 401(k) plans that are not fully preparing employees for the financial burden of retirement.

The 401(k) plan was originally conceived as an arrangement to supplement self-funded savings. It was never intended to serve as America’s primary retirement income vehicle, and it is not structured or designed to create retirement readiness. In fact, no defined contribution plan is comprehensive enough to take into consideration factors impacting retirement, like tax planning, health care needs, life expectancy, lifestyle choices, actuarial tables or a host of other financial retirement considerations.

If we assume that the average employee would like to retire at age 65, then an employer that helps its employees become financially ready to retire will have a significant advantage in attracting and retaining good employees over those that don’t.  Unfortunately, a 401(k) plan, as an employer’s sole retirement vehicle, will generally fall short in delivering what most employees need from an employee benefit plan.  While many in the financial industry push 401(k) plans, we believe that an employer that provides only a 401(k) plan will not be helping its employees achieve retirement readiness.

An employer that really wants to prepare its employees for retirement should adopt a defined benefit pension plan, either as an alternative to a 401(k) plan or in addition to a 401(k) plan.  Unlike a 401(k) plan, a defined benefit pension plan provides a pre-determined retirement benefit at normal retirement age.  The benefit does not depend upon the performance of the investments in the employee’s individual account.  A defined benefit pension plan generally will require larger contributions and will provide a greater retirement benefit to employees.  By adopting a defined benefit pension plan, an employer can ensure that its employees will be financially able to retire at normal retirement age.

Employers that offer defined benefit pension plans have an advantage in attracting and retaining good employees over employers that do not. Unfortunately, many employers do not fully understand the different types of retirement plans or the competitive advantage provided by a defined benefit pension plan.  RMC Group can help you and your clients find the best retirement plan for their employees.  We can help you and your clients ensure that their employees will be financially ready for retirement.

Call RMC Group today to request a defined benefit pension plan quote today, or to learn more about how to design, implement, and sell defined benefit pension plans.  We can help you with traditional defined benefit pension plans and fully-insured 412(e)(3) plans. Contact your RMC regional representative today or our pension office at 239.298.8210.