A Retirement Plan Sponsor Uses the Power of Inertia

“For years, employee engagement was a primary goal of our retirement plan strategy, but we realized it was hard to engage younger workers. Then a light bulb went on, and we decided to use inertia as an asset [for our strategy],” Joseph Huber, managing director and chairman of Credit Suisse’s pension investment committee, tells PLANSPONSOR.

Credit Suisse had a defined benefit pension plan, and a 401(k) plan that started as a supplemental retirement savings vehicle for employees. But, it froze its pension plan, making the 401(k) the primary retirement savings vehicle. Huber says as the company made this transition, it realized its average employee was 35 or 36 years old. “But, whenever we had info meetings, hardly anyone under 40 showed up,” he notes. “It’s hard to engage younger employees.”

Last year, the firm started rethinking how it should define success for its retirement plan. Working with its plan provider, Fidelity Investments, it decided if employees achieved a 50% base salary income replacement from the retirement plan at age 60, that would be success. “We figured out what that would take and designed a plan to achieve that,” according to Huber.

Credit Suisse was introduced to Fidelity’s framework for evaluating and improving retirement plan outcomes, recently launched as its Retirement Vision 2020 strategy. “One thing we found shocking is Fidelity told us 96% of plan sponsors have no idea what their plan is designed to deliver,” Huber explains. “They may know their plan is competitive, but there are so many variables, they have no idea what outcomes will be. We tried to be scientific about it.”

Huber says one thing his group had not thought about before getting into the Retirement Vision 2020 strategy was the consequences of employees not being ready for retirement. “It’s not good for them or the business.” He adds that employers are looking at whether their plans are competitive enough to attract employees, but they should also look at whether it meets employees’ needs.

Huber’s group also looked at some behavioral economics which confirmed inertia can be a powerful tool. “It’s hard to engage employees under 40, and it is also critical for employees to start [saving for retirement] as early as possible,” he says. “Auto features are absolutely the best way to drive successful results. I’m absolutely convinced of that.” But, that may not go far enough, he adds.

Credit Suisse had previously defaulted employees at a 6% salary deferral and let them optionally increase their deferrals. Huber says the average deferral rate was around 8%, and nearly 40% were participating at 6% or less. But, thinking of its new definition of success, Credit Suisse decided employees should be saving around 15% of salary. New employees are now auto enrolled at a 9% salary deferral.The plan has a participation rate of around 93%.

In addition, Credit Suisse reenrolled employees eligible for the plan who were not previously contributing 9% of salary. “About 55% or 60% were retained as contributors in the plan,” Huber proclaims. He says the firm will do that every year, and figures it will probably catch about 50% of those not saving. The plan also now automatically increases employee deferrals 1% per year up to 15%. Credit Suisse is also working with Fidelity to have their plan automatically enroll employees in making catch-up contributions starting the year in which they turn 50.

Huber concedes that plan sponsors may be worried about employee push back. “We were prepared for push back, then surprised at how little there was,” he says. “So employers should not worry about that.”

Of course, engaging employees is still a part of Fidelity’s Retirement Vision 2020 strategy. Credit Suisse held a number of education sessions, reaching hundreds of employees, to explain the plan redesign. There have been education sessions about saving enough and investing properly, and Credit Suisse plans to hold education sessions about withdrawing properly, to encourage employees to start thinking about drawing down money in retirement. Education is helping. Huber notes that when employees reenrolled were told 15% of salary was the optimal savings amount, about 12% chose a deferral higher than 9% of salary.

“No one was asking us to make these changes, we did it because it is the right thing to do,” Huber says. “We told employees, ‘We are going to put you on the path to success. You can get off that path, but we hope you won’t.’”