What Is An Employer-Sponsored Retirement Plan?

Explore the benefits of employer-sponsored retirement plans, such as the Employee Provident Fund (EPF). Comparable to the widely known 401(k) plan in the US, eligible employers contribute to this retirement plan. Learn More.

Amit Sethi
November 21, 2023
Retirement planning

Retirement planning

Secure your future with a strategic retirement plan that provides a consistent and guaranteed income stream. Whether through regular contributions over time or a lump sum investment, your goal should be to build a substantial fund. Automatic accumulation of funds and returns ensures a seamless process, with regular payouts typically initiated post-retirement. There can be many ways to achieve a secure, steady payment after retirement, but let’s focus on knowing more about a special pension option called the Employer-sponsored retirement plan.


Employee-Sponsored Retirement Plans, How It Works?

To build a corpus of funds for retirement needs, you must invest wisely and regularly to ensure that your investment value is sufficient to live comfortably after retirement. In most cases, people invest in various schemes launched by Governments, corporates, asset management companies, banks and other financial institutions to accomplish their retirement goals.

What is unique about employer-sponsored retirement plans is that the employer also contributes towards investment into your retirement corpus. In some cases, the employer matches the investment done by you. In other cases, they may match a part of it. In India, such a scheme is also known as EPF or employee provident fund scheme.

Most of the time, the employer decides what amount they will match and the same is invested by the employee automatically. It is part of the compensation.

Should You Go For It?

The answer simply depends on your discipline and knowledge about investment. The advantage of choosing EPF is that a part of your salary continuously goes towards making your future secure in the long term. The money is deducted before you get the paycheck. The other advantage is that your EPF money is further invested in low-risk assets, so there is minimal risk of loss or a default. It also adds to your financial discipline. Moreover, since the company matches your contribution, there is no reason not to go for it. Your employer’s contribution will also automatically enhance the size of your retirement corpus.

However, if you have good knowledge of the investment market and can manage the retirement plan independently, you can choose it as an alternative instead of relying on it completely.

In most cases, EPF plays a big role in life after retirement. So, generally, going for EPF is advisable. But you must not consider EPF as the only plan for your retirement. You must explore other options to invest for retirement. In some cases, the money invested in EPF may not be sufficient to secure your retirement goals.

So, while it’s suggested that you go for an employer-sponsored retirement scheme, at the same time, be open to investing in other instruments besides EPF.


The author is an independent financial journalist

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