January 2004

Feature:Easy Does It

Generous match, easy entry keys to participation success

Generous match, easy entry keys to participation success

» How Do They Do It?

Even if you build it, they don't always come. Ask any plan sponsor that has taken the time, energy, and expense to craft and sustain a competitive workplace retirement savings plan. On an industrywide basis, participation rates—and this is among people who are eligible to take advantage of the programs—have never registered much above the 80% mark. Think about that for a second. Despite decades of retirement savings education, those "free money" company matches, the sanction of tax deferral, and the much-vaunted convenience of payroll deduction, roughly one in five participants decides to "just say no."

That, of course, is in the best of times. Of late, the picture has been even gloomier.  PLANSPONSOR's 2003 Defined Contribution Survey found an overall participation rate of less than 75% in all market segments—as those rates declined for the second year running.

However, despite soft markets, an uncertain economy, and rising benefit costs, a number of plan sponsors continue to succeed in maintaining, and expanding, their current participation base. In the pages that follow, we recognize some of the best, not just in terms of participation rates, though that is the ultimate validation of a successful program—and the average rate of participation in these programs was 95.5%. Rather, these employers have achieved these rates through a combination of stratagems, education, and program design that can serve as a blueprint for programs with even the most respectable rates of participation.

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How Do They Do It?

There is nothing like a company match (or flat out employer contribution, in the case of a profit-sharing program) to provide participants with the very best incentive to save for retirement. Nearly 83% of the Top Defined Contribution Plans offered a match, compared with 75.6% among the nearly 3,500 plan sponsor respondents to our 2003 Defined Contribution Survey.

Furthermore, a generous match appears to pay off handsomely, based on the experience of the Top Defined Contribution Plans listed in the pages that follow. It is striking, though perhaps not surprising, how many transcend the industry "standard" of 50 cents on the dollar up to 6% of employee pay. Indeed, many offer a match that is more generous than a full dollar for dollar.

It also seems clear that a key element is to make it easy for workers to become participants. A growing number of employers have embraced "automatic enrollment"—a process whereby employees are enrolled in the retirement plan automatically when they become eligible unless they specifically opt out. This strategy leverages the traditional bane of employee participation—inertia—and uses it to the participant's advantage. Proof of the pudding? Roughly half of the 35 plans in our top list employed the strategy, compared with just 18% of the respondents to our 2003 Defined Contribution Survey.

Allowing employees to participate immediately also can make a difference in boosting participation. While doing so may entail additional administrative work in high-turnover industries, there is little question that employees given a chance to sign up for retirement savings alongside their other benefit forms, tax paperwork, and beneficiary designations, seem more likely to act than those who, a year after their employment begins, are asked to consider the option. Just ask the 19 plan sponsors among the Top 35 that currently permit this.

As for vesting, while three years appears to be something of a standard, more than a third of the Top DC Plans detailed in the pages that follow vest participants 100% immediately in their accounts.

Other characteristics of interest (Top DC Plans vs. 2003 Defined Contribution Survey):

• 23.8 investment options offered, compared with 16.7 overall

• 48% offer investment advice, versus 43.5% overall

• 34.3% offer company stock, compared with 12.1% overall

• 25.7% offer self-directed brokerage, versus 22.1% overall

Less quantified, but no less evident in the pages that follow, is the significance of educating and promoting—and reeducating and continually promoting—the importance of saving for retirement.

In sum, make saving for retirement easy, make it worthwhile, make it important—and participants will respond in kind.

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