Benefits of a Defined Contribution Plan

When choosing benefits for their employees, most employers select generic plans for
Dental, Vision, Life, Disability, Accident, etc., that they hope will cover a little of something
for everyone. However, this one-size-fits-all plan doesn’t always maximize employee
satisfaction, and company dollars could be wasted on benefits that some employees don’t
need or use.

With a Defined Contribution plan, an employer can give his or her employees a dollar
amount to spend on benefits, which allows group members to choose which benefits will
best fit their individual needs.

Benefits for Employers
1) Consistent Cost: Defined Contribution plans allow for a specific dollar amount,
rather than a certain benefit, so annual rate increases are not a threat.
2) More Value for Dollars Spent: Employees choose the benefits they need, and pay
for anything above their allotted amount, so employers are not paying for unneeded
benefits.
3) Fewer Headaches: Having a Defined Contribution plan eliminates the
responsibility of trying to choose a benefits package that makes everyone happy.
4) Participation Eliminated: Using a Defined Contribution strategy eliminates the
need to have a certain number of employees enrolled in the company’s benefit
plans.
5) Employee Retention: Monthly Defined Contribution amounts are far less costly
than hiring and training new employees because employees leave for better
compensation and benefits elsewhere.

Benefits for Employees
1) Satisfied Employees: Employees can buy what suits them most with their current
lifestyle and family structure, rather than just taking what the employer chose for
the group.
2) Multiple Options: A Defined Contribution plan has different options within each
line of coverage from which to choose.
3) Guaranteed Issue: Every benefit is guaranteed issue, so no medical exams or priors
will be a factor in obtaining coverage.
4) Incentive Dollars: Employees can be encouraged to buy into the company’s Defined
Contribution plan with as little as a $15.00 per month or $0.50 per day toward
benefits from the employer.