Total Plan Assets: $124 million
Participants: 960
Participation Rate: 91%
Average Deferral Rate: 8.9%
Default Deferral Rate: 6%
Default Investment: Vanguard Target Retirement Fund Life
Automatic Enrollment: 6%
Automatic Escalation: No
Employer Contribution: 25% on 6% + 7.5% ESOP contribution

Short Elliott Hendrickson Inc. (SEH) is a multi-disciplined, single-source consulting services firm of engineers, architects, planners and scientists, whose goal is to improve mobility, design better places, engineer clean water and renew infrastructure.

The firm, which is 100% employee owned, also makes a priority of providing great benefits—including its 401(k) plan and employee stock ownership plan (ESOP). The ESOP in particular lets the firm engage its workers as owners, not just staff.

Saving for retirement was not always a company focus, says James Fraser, chief financial officer (CFO), from company headquarters in St. Paul, Minnesota. “Ten years ago, people weren’t talking about employee ownership; people weren’t talking about retirement.”

Today, 91% of employees participate in the retirement plan, deferring an average 8.9% of earnings. More telling, perhaps, participants at all stages of their careers are finally discussing the inevitability of retirement, Fraser says. “Now, people probably know their [retirement] score. ”

The change started seven years ago when the company began an educational campaign to promote the ESOP, a plan most of the participants barely understood. SEH developed a retirement calculator that could add up an employee’s assets in that plan as well as in the 401(k), allowing the individual to model various time frames before retirement.

Fraser says the company wanted to accomplish more than just investing its money in a plan; it wanted to change the employees’ mindset as to the control they had over their eventual retirement. Soon, participants began to recognize the weight they bore for the growth of their ESOP investment—a power they lacked with their 401(k) assets.

“The advantage of contributions that go into the ESOP is they are something participants can influence,” Fraser says. “It’s hard to influence a Vanguard Fund in your 401(k), but it’s easier for employees to influence the stock price of SEH. They feel a little more connected with our ESOP.”

It was in 2012, during a benchmark review, that SEH decided to add a fiduciary adviser to its plan. It chose intellicents, the review’s conductor, to supply it with investment advisory services. Even though the plan was relying heavily on technology to engage workers, who typically had technological backgrounds, 72% already were saving enough to replace 75% of their pre-retirement income, intellicents found during mid-year reviews in 2013 and 2014.

78% on Track to Replace 90%-plus of Income

Today, says Kevin Dulitz, vice president of employee benefits at intellicents and financial adviser to the plan, 78% of SEH employees are on track to replace over 90% of their pre-retirement income. While the ESOP is a help—“We estimated, looking at employees of 25 years or more, that they will definitely satisfy over 20% in the ESOP,” Dulitz notes—the bulk of workers’ savings, 50%, is in their 401(k) account, plus 25% in Social Security. 

Ninety-two percent of workers defer 6%—the automatic enrollment rate—or more of their income to retirement savings; 37% of that group save 6% and the rest, between 7% and 15%, says Dulitz. Only 8% of employees contribute 5% or less. The company matches 25% on up to 6%, plus it makes a 7.5% ESOP contribution, for a total of 9%.

“They are very paternalistic when it comes to their employees and retirement plans,” Dulitz observes. “They put a high value on the plans; they want to make sure their employees are succeeding and can reach their retirement goals.”

To make it easy to get started, SEH allows immediate eligibility to the 401(k) plan; participants start receiving ESOP contributions after completing one year’s employment.

Having both plans to save in has incentivized participants to up their deferrals, Fraser believes. Between even just a 6% deferral, the company match and an ESOP contribution, a participant can save 15%.

Engaging Participants for Success 

The company educates workers on the basics of corporate valuation, to help them understand what drives the company’s share price, and maintains transparency on internal financial statements, Fraser says. Participants can see the company’s profitability and have the option to review its financial statements monthly, he says.

SEH sends Fraser on tour, every other year, to its 30 offices to promote retirement readiness and the two retirement plans, plus hosts an employee resource group dedicated to young professionals who have adopted the ESOP.

The company regularly displays posters highlighting various aspects the plan—e.g., clarifying what the tax-deferred contributions and ESOP rollovers include and showing how much SEH has contributed since that plan began. Additionally, the company holds events, such as a happy hour or a celebration for a stock price, every quarter for the purpose of discussing employee ownership.

The investment committee has four member seats: Fraser’s and three, with revolving tenure dates, for employees. “The committee members bring new ideas every year,” Dulitz says. Because SEH has 800 employees, spread over multiple offices, to draw from, “the committee doesn’t get stagnant with redundancy,” he says.

That body does not make final decisions on plan design but makes recommendations to the SEH board of directors—whom employee owners vote for—if they want to modify investment options or plan provisions, for instance, Dulitz says.

Fees and Funds

SEH pays for recordkeeping/custodial services, but when the company hired intellicents, it changed its fee arrangement from basis points (bps) to a flat per-participant fee—a move that saved the company $60,000 annually.

This January, SEH negotiated a decrease in fees from recordkeeper Fidelity, resulting in an 8% cut. The 401(k)’s total fees, for investment management, administration/recordkeeping, custody, trustee and advisory, and other fees, is .502%.

Along with fees, the company benchmarks individual fund lineups and offerings, and may change the fund during the course of the year, depending on manager turnover or poor performance on a weighted scale, says Fraser.

The company’s investment lineup has 24 core funds, including a mix of passive and active funds, a Vanguard target-date fund (TDF) suite and managed portfolio options.

All told, the aim of the plans is to ensure that all participants will have saved enough to live out their retirement years comfortably. “It’s not just a goal that’s fun to say,” Fraser says. “Our goal is for everyone to have a well-provided-for retirement.” 

—Amanda Umpierrez

 

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