Structure Voluntary Retirement Programs

Retirement investment offerings

Voluntary retirement programs are a discretionary benefit offered by some employers. Voluntary retirement programs offer employees an incentive to commit to employment with their employer for a significant number of years. Voluntary retirement programs can also provide employees with an option to retire before the minimum age of a government pension scheme. Voluntary retirement programs may provide employers with opportunities to reduce the number of employees impacted by impending layoffs. All employer sponsored retirement programs are subject to complex rules and should be structured plainly.


Structure a Voluntary Retirement Program

1. Determine the minimum age at which your company considers an employee is eligible for voluntary retirement. Most companies also consider a minimum number of years of service with the company as a co-factor or alternative to a minimum age.

2. Workers aged 40 and older are protected from age discrimination.

Determine whether a voluntary plan could negatively impact the older workforce. Workers aged 40 and above are protected from unfair discrimination. If the majority of your workforce is 40 and older, establishing a voluntary retirement plan with a minimum age criterion could be viewed as an attempt to replacing an aging workforce with younger employees. A severance plan open to all employees at the firm may be more beneficial. A severance plan can be based on number of years in employment with the firm.

3. Determine whether a defined benefit plan or a defined contribution plan is preferable. A defined plan is a retirement program that guarantees a specific monthly pension amount. A defined contribution plan is one where both the employer and the employee contribute to the employee’s personal retirement investment account, such as a 401k or an IRA.

4. Set the length of time for the benefit. Depending whether the company will provide a defined contribution or a defined benefit plan, the employer will need to establish the duration of the employer’s efforts. Will the pension continue for the remainder of the employee’s life? Or will he receive a pension for a finite length of time? Similarly, the company will need to decide whether it will contribute to an employee’s retirement account for the full length of employment or only for a certain period of years, such as the last ten, or after the first five.

5. Establish the first year of qualification. The company will need to determine whether an individual can choose to retire immediately or whether election to retire will be available to certain individuals starting next year.

6. Establish an infrastructure for record keeping to track the flow of money to and from the program. Third-party administrators can provide this service on behalf of the employer.

7. Establish a plan administrator and a mechanism for disseminating information on the plan. The Employer Retirement Income Security Act (ERISA) requires that participants have full disclosure on the structure and funding of the plan.

8. Designate a position responsible for responding to Qualified Domestic Relations Orders. QDROs allow qualified dependents to inquire about the funding of the employee’s retirement account or pension. QDROs are usually the result of a divorce or death. QDROs have protection under ERISA.

9. Prepare program information documents and disseminate to all employees.