Compensation the Current Plan Is a Defined Essay

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Compensation

The current plan is a defined contribution plan, but the employees are not using it effectively. Many are heavily weighted in money market, and over 70% of employees are not even making contributions. Both of these problems need to be addressed.

The first question that should be raised with senior management is whether to offer a defined benefit plan, rather than a defined contribution plan. Part of the reason that many employees do not use the plan is that they probably do not truly understand the plan. A defined benefit plan is much easier to understand for employees because it gives them a set benefit (DOL, 2012). The risk in a defined benefit plan, however, is on the company, whereas with a defined contribution plan the risk falls to the employees. So from the company's point-of-view it is probably better to have the current plan, and maybe we just need to communicate its benefits better to the employees in order to get more buy-in.

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Risk is another area of concern. Most likely because the employees do not understand investments, they are very risk averse. As a result, the plan is grossly overallocated in money market. To alleviate these concerns, it is recommended that the company initiate some investment training for the employees. This would help them become more comfortable with the plan, and have a better sense of the value of retirement planning. It may have been too much to expect the employees to understand the concepts without this training.

The employees need to know a few things, if we are to provide them training. The first thing they need to know is why retirement planning is important. Without this, they will not have much motivation to pay attention to the rest of the teaching, but also they will….....

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