Corporate 401(k) >$800MM
Harris Teeter Supermarkets
PARTICIPATION RATE: 83.8%
AVERAGE DEFERRAL RATE: 6.3%
DEFAULT DEFERRAL RATE: 4%
DEFAULT INVESTMENT: Age-appropriate T. Rowe Price Retirement Trusts
AUTOMATIC ENROLLMENT: Yes
AUTOMATIC ESCALATION: Yes
EMPLOYER CONTRIBUTION: 50% on 4%, plus 2% – 5% contribution based on age/service points
Harris Teeter, LLC, a supermarket chain headquartered in Matthews, North Carolina, is in a competitive marketplace, facing not only changing technology and consumer demands but also heightened competition on prices from giants such as Amazon.
“A tremendous amount of competition has entered the grocery industry, and Harris Teeter has responded by investing in the consumer shopping experience and by reducing prices,” says Douglas Yacenda, director of retirement plans for the company. “Because of that, there’s a premium on high-performing experienced associates such as those that work for Harris Teeter.”
Despite being acquired by mega retailer The Kroger Co. in 2014 and experiencing significant growth, Harris Teeter has maintained its vision for offering great customer service and high-quality products; supporting local communities; and helping its associates attain retirement readiness.
Founded in 1960 by North Carolina grocers W.T. Harris and Willis Teeter, Harris Teeter operates over 230 retail grocery stores and 14 fuel centers in seven states and the District of Columbia. Each of its stores, in the community it serves, is known for supporting local schools, youth sports associations and other nonprofit organizations.
Its commitment to its associates is exemplified by the 401(k) plan. Thanks to the plan design enhancements the Harris Teeter team has implemented over the last decade, the plan is competitive in the retail space and drives strong, positive outcomes for participants.
“Since we switched from an opt-in auto[matic] increase to opt-out auto-increase in August 2016, to raise the average deferral rate in the plan, the average salary deferral has increased by 21%,” Yacenda notes.
Embracing New Ideas
Harris Teeter helps participants save by contributing 50% on deferrals up to 4% of compensation, plus a noncontributory annual retirement contribution (ARC) of 2% through 5% of eligible plan compensation. There are four age/service-point brackets that determine the percent an eligible participant’s account will receive.
In June 2016, the company reduced the number of loans participants could take and implemented a $500 minimum hardship distribution to discourage unnecessary requests. Last year, it replaced its target-date funds (TDFs) with retirement trusts to lower costs. And, at participants’ request, it modified the plan so those taking their company pension as a lump sum could roll it into the 401(k).
The company encourages participants to be properly diversified in their retirement assets and implemented a 20% restriction on how much employer stock participants could own in their account. “We’re in the process of developing an annual communication alerting participants to the need for investment diversification, and we plan to implement this annual message this year,” Yacenda says. “We constantly look for ways to improve the plan for our participants and increase their engagement. We quickly embrace new ideas that make sense for our participants.”
Ever since hiring T. Rowe Price as plan recordkeeper in 2000, the Harris Teeter administration team has had biweekly calls with that firm’s administration team and the stores’ ERISA [Employee Retirement Income Security Act] counsel “to discuss issues and opportunities and to maintain great communication” with those other parties, Yacenda says.
“We maintain a call log and track open and closed items. This process has been so successful, we have adopted it for keeping track of open items with other vendors,” he continues. “We’ve been invited to beta test or be an early adopter of a number of products and features for T. Rowe Price, and we embrace anything that makes administration and execution easier for our participants, more effective and more accurate. We also meet face to face with the T. Rowe Price administration team annually to discuss plans for the coming year.”
To ensure that some participants were not subsidizing the recordkeeping fee for others, the company adopted a procedure of giving a quarterly credit to all participants based on the amount T. Rowe Price received for administrative services in connection with the plan’s investment options. Before this administration fee credit, the in-effect subsidization was allowing an artificially low recordkeeping fee that did not reflect the true cost of those services for each participant, says Kimberly Johnson, T. Rowe Price relationship manager.
A particular challenge for the sponsor was communicating with its widespread retail work force to encourage it to save, Yacenda says. The company, therefore, implemented several communication programs, ranging from break-room posters on plan topics, such as Roth contributions and investments, to lunch-and-learn seminars at the corporate office and in other store locations, although these did not receive the level of attendance necessary to maintain that program, he says.
To increase participant engagement, last year the company partnered with T. Rowe Price to create a custom, mandatory educational video on plan basics to help employees understand the retirement plan and its features. Covered were topics such as the power of compound interest; contribution limitations; the differences between pre-tax and Roth contributions; ARC rates; and benchmarking.
“The video was required viewing,” Yacenda says, adding that the company plans to repeat the requirement every two years. “This is also part of new associates’ on-boarding training,” he says.
The company also sponsors an associate portal that contains a single-sign-on feature linking to participants’ T. Rowe Price accounts to simplify accessing their balance and making changes. Johnson says, “These efforts are in addition to the planning features available to participants on their plan website, and the ‘smart videos’ created by T. Rowe Price that are personalized for individual participants. These smart videos have resulted in action being taken by 25% of the participants who viewed them.”
“Our participation rate is 26% higher than for the retail industry and 6% higher than T. Rowe Price’s book of business,” notes Yacenda, adding that Harris Teeter also utilizes the recordkeeper’s Plan Meter, which estimates replacement income based solely on plan assets. “T. Rowe Price recommends that 50% of pre-retirement income be replaced by 401(k) savings,” he says.
Like most retirement plan participants, those at Harris Teeter save less than financial experts recommend. According to Johnson, “We’ve taken action to try to improve that. The educational video provides age-based recommended savings targets for our associates, and the median pre-retirement income replacement percentage was about 18% prior to implementing the opt-out auto[matic] increase. By the time auto-increase is fully phased in, we project that the replacement percentage will almost double, to about 33%,” she says.
As Yacenda puts it, “We feel there is a premium on our people, and we hope, by the benefits we offer, they recognize how much we value them. If approached by a competitor, we want them to understand their benefits so they can make an informed decision.” – Judy Faust Hartnett