Employer-Sponsored Plans: A Source of Retirement Income.

Benefits Packages Include Investment Opportunities

Financially secure retirement is an essential part of the American dream.

Whether your retirement plans include travel, leisure or new pursuits, such goals will only be reached through realistic planning. With greater life expectancies and advances in health care, most of us are expecting to enjoy longer and more active retirements than our parents and grandparents did.

Participation in an employer-sponsored retirement savings and investment plan, such as a 401(k), offers an effective means to help fill the gap between what Social Security will provide and what you will need for a comfortable retirement.

Over the last 10 years, there has been a tremendous increase in the number of companies -- including small businesses --offering retirement plans to employees. The tight labor market has made the 401(k) plan an indispensable part of the employee benefits package that a company uses to compete for and retain valuable workers.

However, a company offering a retirement plan must make wise decisions to maximize the value of the plan for employees and protect itself from fiduciary liability.

* Deferring Pre-Tax Payroll Money Into Retirement Accounts

A 401(k) plan allows employees to defer pre-tax payroll dollars into retirement savings accounts. Investment returns that accumulate in the account are tax deferred until withdrawal at retirement.

In most plans, employers offer a matching contribution at a specified percentage, for example, contributing 50 percent to an employee's account for each dollar that the employee defers. Depending on the employer's decisions in setting up the 401(k) plan, employees may have a limited or quite extensive choice of investment options for their money.

Most plans offer mutual funds from a broad spectrum of asset classes, and employees invest their deferred dollars in one or more of these funds. An investment institution can provide education materials geared to the level of investment knowledge among each particular employee group.

A strategy to communicate the plan to employees will reinforce the educational component and encourage informed participation. With an effective education process, employees can make appropriate individual investment choices about the stock and bond funds available through the plan.

Larger companies often offer their own stock as an investment choice within their retirement plan. Some smaller firms, especially in the high-tech sector, have recently gravitated toward this practice.

Statistics show that participants in plans with company stock have enjoyed attractive returns in recent years. An option that encourages shared ownership in the company can motivate employees and tends to be well perceived by both employers and employees.

* Providing A High-Value, Low-Cost Benefit

A 401(k) plan is a highly valued but relatively low-cost benefit for employers to offer. The plan can be structured to offer immediate eligibility to new employees, which can be an advantage in a competitive hiring situation.

Employees appreciate that their retirement accounts are self directed and completely portable. When an employee leaves the company, he can roll his assets into a new employer's plan or into an individually controlled account.

401(k) plans permit employees to take loans from their accounts, but loans should only be taken with great caution. If you do not pay back your 401(k) account in accordance with the terms of the loan, you will incur taxes and penalties. Perhaps more importantly, the savings withdrawn as a loan are no longer working to build investment returns for your retirement.

The opportunity to invest pre-tax dollars on a tax-deferred basis for the long term is the most compelling reason to participate in an employer sponsored retirement plan.

The active merger and acquisition environment of recent years has presented difficulties for employer-sponsored retirement plans.

Mergers And Acquisitions Create Consolidation Issues

Consolidating plans involves some thorny issues, and several plans have entered the purview of the federal court system as employer fiduciary responsibilities are critically examined. In some cases, employees of acquired companies have challenged new plans if they offer less attractive investment options than the previously available plan.

Employees are also questioning the employer's role as a fiduciary. In the strict sense of the term, a fiduciary is responsible to represent the interests of plan participants (employees) before the company's interest. In the midst of

mergers and acquisitions, employees have questioned whether the plan fiduciary is acting in their interests or those of shareholders.

An employer sponsored retirement plan provides an important incentive to workers to stay with a company and contribute to its success while also creating a much-needed nest egg. With 401(k) plans now representing 60 percent of all employer-sponsored retirement plans, the traditional employer pension payment is becoming rare and Americans are increasingly responsible for planning their own financial futures.

Access to 401(k) plans is valuable, and high quality investment education for employees is an important part of that opportunity.

Investment education teaches employees to evaluate realistically their expectations for return and their tolerance for market fluctuation. It also helps participants to understand the risks of inflation as well as the astonishing rewards achieved by compound interest over time; $10,000 invested in the Standard & Poor's 500 Index in 1934 would be worth more than $19 million today.

In a well-run employer-sponsored plan with good educational support, a worker doesn't have to be an investment expert to implement a long-term investing strategy that will make retirement dreams a reality.

Rooney is the founder and CEO of Rooney/Crull Financial & Insurance Services, Inc., an employee and executive benefits firm. Rooney/Crull specializes in executive compensation, retirement planning and employee benefits strategies.