Wharton Smith, Inc.

Total Plan Assets/Participants: $19.7 million/363

Participation Rate: 95.3%

Average Deferral Rate: 7.0%

Average Participant Replacement Rate Ratio: 73% have a 75% or higher income ratio

Default deferral rate: 6%

Default Investment: BlackRock LifePath Target Date Funds (TDFs)

Match: 50% up to 6% of pay

Additional Retirement Plan: Nonqualified plan

JUST TWO YEARS AGO, the retirement readiness prospects of many Wharton-Smith, Inc., employees did not look good. 

“Among many senior employees, balances were not very high,” says Jim Levasseur, human resources (HR) director at the construction company, headquartered in Sanford, Florida. “And the college grads we’d hired needed to get into the plan and take advantage of time [for their savings to grow],” he says.

The $19.7 million plan already automatically enrolled new hires at a 4% deferral, but participation stood at just 49%. Participants’ deferrals averaged 4.48%, and about 75% of participants had their money in the plan’s then-default, a relatively conservative risk-based fund. “Many employees thought they couldn’t afford to default in at 4%,” Levasseur recalls. “Nobody was really getting themselves prepared.”

The plan’s recordkeeper at the time had done too little to discourage employees from opting out of automatic enrollment, Levasseur believes. “Also [Wharton-Smith] did not push very hard on our field employees—who were making $12 to $13 an hour and living paycheck to paycheck—that they needed to start saving for retirement,” he says.

But amid a 2014 recordkeeper switch and plan-design changes taking effect this year, participation has surged from 49% to 95.3%, and average deferrals have grown from 4.48% to 7.0%. The provider switch also helped decrease average bundled participant fees—which include recordkeeping, investment and consulting fees—from 103 basis points (bps) down to 75. A move to institutional share-class mutual funds has led the plan to eliminate the use of revenue sharing, and the plan’s investments currently have a weighted average expense ratio of 25 basis points. Wharton-Smith now sees 73% of participants in its plan on target to have at least a 75% income replacement ratio, including Social Security, in retirement.

Recordkeeper and Plan-Design Changes
The 31-year-old company provides pre-construction, construction management, general contracting, green building and design-build services, primarily in the Southeastern United States. As well as construction laborers, it employs skilled craftsmen, project managers and administrative staff, among others.

Trends in the 401(k) plan concerned Levasseur. “I was watching the number of loans increase and the average percentage deferral hold steady or even decrease,” he says. “I saw the patterns, and I didn’t like what I was seeing.”

Asked about the company’s mission in offering a retirement benefit, President and CEO Ron Davoli mentions “helping us attract and retain employees, and helping them meet their retirement goals.” From a business-case perspective, he says, it works best for both the company and its employees if they can retire on time. Employees more willingly do that “if they feel like they have some security and a nest egg,” he says.

A few years ago, though, trends in the 401(k) plan concerned Levasseur. “I was watching the number of loans increase and the average percentage deferral hold steady or even decrease,” he says. “I saw the patterns, and I didn’t like what I was seeing.”

When Jason Johnson came on board as plan adviser in late 2013, he saw a company open to fresh ideas on how to enhance the plan and help participants. “We asked, ‘How do we improve participant outcomes?’” says Johnson, a senior vice president at UBS Financial Services Inc. in Orlando, Florida. “We said, ‘Let’s start by bidding out the plan [to recordkeepers] and see if we can get better fees and services. Then let’s look at plan design.’” 

The search ended the following year with a switch to Putnam Investments, now Empower Retirement, as recordkeeper and a change to target-date funds (TDFs) from BlackRock’s LifePath suite as the default investment. Then attention turned to improving the struggling participation and savings rates.

“There was a lot of employee inertia,” Johnson says. In such cases, he believes, “it is incumbent on the plan sponsor to help participants to have better success. I told them, ‘These are the things that will help you get from point A to point B—the best practices.’ And to their credit, they were willing to do the best practices.”

Wharton-Smith has made numerous plan-design changes and has more in progress. On January 1 of this year, the plan raised the initial deferral for new hires from 4% to 6% and also re-enrolled participants at 6% who had been contributing below that level. This year, the plan increased the match to 50% of the first 6%, up from 50% of the first 4%. In July, the plan also will implement an automatic increase of 1% a year up to 10%. Additionally, the eligibility time for plan participation decreased from 90 to 60 days of employment.

Now, 363 of 381 eligible employees participate in the plan. “We had only 18 people opt out,” Johnson says. “This is a great participation rate for most companies, especially one in the construction industry.”

Also helping the plan’s stats, Levasseur and his colleagues have worked with the new recordkeeper to remove terminated participants with balances of less than $5,000 from the plan. “We had about 40% of people in the plan who were minimal-balance, terminated employees,” he says. Once the plan finds these former workers, “they either roll their money out of the plan or the recordkeeper sets up IRAs [individual retirement accounts] for them,” he says. “And if people couldn’t be found and the six-month window of time to find them expired, their money went into a default fund for the plan that is used to pay match costs and plan expenses.” Just 25 terminated employees with low balances now remain in the plan.

Education Challenges, Employee Acceptance
Educating Wharton-Smith’s employees about the changes posed some challenges, notably in reaching them and making sure they understood. More than half the company’s work force is laborers, says Devon Lewis, vice president of finance. “They are field construction workers, and Spanish is their primary language.” The company has locations in five states, with the majority of workers on job sites rather than in offices. Many field employees have limited education, and some have no access to a computer.

Last year, Levasseur and Johnson rolled out the revised plan at Wharton-Smith’s annual “state of the business” meeting, to an audience that largely consisted of the company’s management and other senior employees. The two then did several group meetings for employees at job sites.

Workers unable to attend a group meeting could learn about the new plan features by watching a 30-minute, on-demand Brainshark video customized for the plan, which they could view at home with a spouse if they wished. Wharton-Smith also had written materials on the plan’s changes translated into Spanish, and a Spanish-speaking staff member from headquarters was made available to answer participant questions.

According to Johnson, the message Wharton-Smith sought to convey to employees about the plan modifications was: “The company cares about whether you’re going to have a successful retirement. These are the things we’re doing to help you, and these are the things you can do to enhance what we’re doing.”

The upfront communications work has paid off, as the changes have seen widespread employee acceptance. Says Lewis, “You always, in the back of your mind, think there’s going to be some pushback. We were willing to take that chance.”   

—Judy Ward