The idea of retirement—and how much needs to be saved for it—means very different things to different Microsoft Corp. employees.

“The notion of retirement keeps changing,” says Sonja Kellen, director of global retirement at the Redmond, Washington-based software and technology services company. “Today, it’s less about just cutting off their career on one day and then moving to the golf course.”

So Microsoft does not calculate retirement-income projections for its 401(k) participants. “It’s about getting to that point where your resources meet your future needs. We don’t look at a traditional replacement ratio but rather the age at which employees are on track to reach financial independence,” Kellen says. She notes that Microsoft’s median age for that currently hovers in the mid-60s, according to what the company knows about employees’ assets—primarily what they hold in their 401(k)s.

The $11.2 billion plan has 75,108 participants and an 87% participation rate. Microsoft matches 50% of the first 6% of pay an employee puts into the plan, and participant deferrals average 8%. In 2012, the plan started allowing participants to convert after-tax contributions into Roth 401(k) balances, so they may contribute up to $20,000 in after-tax savings on top of the annual pre-tax contribution limit.

Because Microsoft’s employees have varying long-term plans, in 2013 the company launched a customized tool that helps them think through how much they need to save. Besides estimating their financial-independence age, it lets them model the influence of changes, such as an increase in their deferrals. Twenty-two percent of Microsoft employees accessed the tool in the first six weeks after launch.

Whatever employees’ future plans, Microsoft works to educate them about the need to save more than the 6% contribution required to get the full match. However, the plan sponsor studied but declined to institute automatic enrollment. That is partly because Microsoft has more of an “opt-in” corporate culture, Kellen says.

However, participants can opt into annual auto-escalation at a rate they choose—between 1% and 4%—up to a cap they select. Microsoft saw a 55% increase in its usage following the introduction of its modeling tool.

Microsoft also encourages workers who have left the company to keep their 401(k) balance in the plan.

Staying in the plan benefits many people, Kellen says. The plan does not charge participants, who pay an average of just 29 basis points (bps) in investment fees and no administrative fee, because it does not want their retirement savings “whittled away” by unnecessary expenses, she says.

—Judy Ward

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