An employer-sponsored plan is any type of benefit package set up by a company for its employees. Employer-sponsored plans typically include health care and retirement packages. These plans are not intended by most companies to be free, but rather are offered at a low-cost to employees. As such, plans often use salary reduction contributions or low monthly premiums to be paid by the employee. These plans are generally tax-deductible in some way both to the employer and employee.
An employer-sponsored plan for retirement can come in many different packages. In the United States (U.S.), one of the most common options available to employees is the 401(k) retirement plan. With a 401(k), employees defer part of their salary into a 401(k) account. These deferrals are referred to as salary reduction contributions. Some employers may elect to match all or part of an employee's contributions, but may also choose to contribute nothing. Many companies will include different investment options within an employee's 401(k) account. Company stock, as well as other stock, bonds and mutual funds may be investment options that a company provides an employee through the 401(k) plan. When a U.S. employee retires, and is over the age of 59 1/2, he or she is usually free to withdraw funds without incurring a penalty. Many other countries have similar retirement investment options as well.
Pension plans are another kind of employer-sponsored plan for retirement. Unlike employee investment plans, in which the employee contributes the majority of retirement funds, the employer contributes funds regularly into a special retirement account. These funds may be lumped into a pool that compounds simple interest, or may be invested into various funds and investments on the employee's behalf. When the employee reaches retirement, he or she may access pension funds and derive a yearly salary to cover cost-of-living expenses. In many cases, employees have some say in how pension funds are allocated; they typically have a choice between a single-life or a joint-life payout. Single-life payouts are pension plans that pay a salary for as long as the retired employee lives. Joint-life payouts continue even after a retired employee's death, offering continued funds to a still-living spouse or other member of the family.
An employer-sponsored plan can also include health care benefits. Employer-sponsored health insurance often provides comprehensive health care coverage to qualifying employees at a monthly premium lower than plans available on the private market. Workers' compensation is another variation of employer-sponsored health insurance. Workers' compensation ensures that workers who are unable to work due to injury or illness continue to receive wages and, if an ailment is directly work-related, are compensated directly for medical expenses.
There are many variations on all types of employer-sponsored plans. Employers can, for example, use allocated funding instruments to help them provide pension plans with different benefits. There can also be provisions for how to handle the termination of a pension plan. Health care packages can also come with a wide variety of different provisions. An employer-sponsored plan may also be established to reward employees for achieving different goals. Reward programs can incentivize just about everything from rewarding the employee with the month's highest sales, to rewarding employees who promote environmental friendliness by biking to work instead of driving.
