Kimley-Horn and Associates, Inc.

Kimley-Horn and Associates, Inc., a planning, engineering and design consulting company, in Raleigh, North Carolina, offers an 18% annual contribution to employees’ retirement savings: a 200% 401(k) match on up to 4% of deferrals, plus a profit-sharing contribution that is typically 10%. Last year, 99% of participating employees received that 18% maximum benefit.

President and CEO Steven Lefton explains the business rationale for Kimley-Horn’s commitment to the large employer contribution. “I joined the company 22 years ago, and it was in place then,” he says. “It plays a big role in our recruiting approach. That [contribution] is a big part of our story—getting people to understand that even before they join us. And it’s extraordinary from a retention standpoint.”

Lefton says the financial commitment—which is also to employees’ retirement readiness—speaks to Kimley-Horn’s philosophy as an employer. “We see it as a high level of responsibility we have,” he says. “We take care of our people, not just for their employment, but for the duration of their life. They’ve earned the right to retire in comfort. We owe that to our employees: Many of them have spent their entire careers serving our clients.”

When thinking about its 401(k) plan expense, the company does not look for a direct return on investment (ROI). “The way we measure the return is less about ROI in the traditional sense and more about the happiness of our employees and their retention,” Lefton says. “And it’s about the happiness of the clients our employees are serving. That’s very important, because 93% of our new work comes from client referrals.”

An Increased Match

Participants in the plan have a median projected income-replacement ratio of 64%, as of 2017, says Kimley-Horn Treasurer David McEntee. “We automatically enroll at 4% because that’s the level to get the full match,” he says. “If employees put in 4%, we’re comfortable that a 22% total contribution is more than sufficient for [them] to retire on time and with enough savings.” About half of employees contribute more than 4%, he adds.

The match formula of 200% on 4%—including salary and bonuses—started five years ago, following an employee survey, McEntee says. Previously, Kimley-Horn had also, as a rule, made an 18% total contribution, but in the form of a 100% on 4% match plus 14% profit-sharing contribution. The company temporarily lowered its total contribution to 12% in the wake of the 2008 through 2009 recession.

“We were trying to understand what our employees valued about their benefits,” Lefton says of the survey, which found that they valued the retirement plan and the company’s contribution toward it very highly. “That feeling wasn’t just weighted to our longer-service folks,” he recalls. “So we said, ‘Why on earth is so much of our contribution a discretionary profit-sharing contribution? Let’s shift our perspective.’ We flipped from a 1-to-1 to a 2-to-1 match, and that is not discretionary. We decided that we can make a bigger commitment to our people upfront.”

The company made an offsetting reduction in the profit-sharing contribution, but the aggregate contribution remained 18%.

Among new hires who get auto-enrolled by Kimley-Horn, more than 80% stay in the plan’s default investment, McEntee says. Last year, the plan converted its default from a mutual fund to a collective investment trust (CIT), as it moved to the T. Rowe Price Target Date Trust. That change lowered participants’ net fee for the default investment by 20%, from approximately 50 basis points (bps) to 40 basis points.

A year ago January, the plan also moved to a more transparent fee approach and started to charge a flat, per-participant quarterly recordkeeping fee of $22, or $88 a year. “We thought it was fairer” than a basis-point fee, which varies based on a participant’s account balance, McEntee says. “Whether somebody’s balance is $100,000 or $1 million, he actually receives a very similar level of service.” For participants invested in the several plan options that still utilize revenue sharing, the revenue-sharing payments are rebated to them.

To help new Kimley-Horn hires keep their fees low, the company pays the recordkeeping fee for their first two years on the job. “When people are new to the plan and have a very small balance, $88 can turn out to be 1% or more of their balance,” McEntee notes.

Appealing to Young Employees

The leadership at Kimley-Horn believe it is crucial for young employees to see the value of saving in the 401(k) plan. The company has hired between 400 and 500 recent college graduates in each of the past two years, and more than 45% of its employees are aged 30 or younger. Partnering with recordkeeper T. Rowe Price, the company has developed two videos to help its recruiters communicate the plan’s value to potential employees.

One of the videos, a four-minute presentation available on YouTube, targets new college graduates, explaining that while many companies offer retirement plans, not all plans are created equal. It cites study data that Kimley-Horn’s contribution is four times the average for its industry. The video intersperses a walk-through of the company contribution, showing how it works and how that high amount can lead employees to substantial savings over a decades-long career, with footage of young Kimley-Horn employees, talking about their retirement hopes and dreams.

This January, the plan also added an in-plan Roth conversion, with a nod to younger employees’ strong interest in Roth savings.

Additionally, last year, Kimley-Horn started to contemplate making an innovative move: auto-enrolling new hires into a Roth contribution as the default, vs. the current use of pre-tax contributions.

“We hire a huge number of recent college graduates, and that’s the group that tends to be most interested in Roth,” McEntee observes. “Younger employees’ perception often is that their tax rates are lower now than they will be later in their career, and they are better off to pay the taxes on that money now and then withdraw the balance tax-free when they retire 40 years from now.”

But Kimley-Horn would need to carefully communicate the decision to all employees and make sure participants know they can keep deferring on a pre-tax basis, McEntee says. “We would have to be very clear that if what they prefer is the traditional pre-tax contribution, they could absolutely make that change. All they would have to do is go online or make one call to T. Rowe Price,” he notes.

It is hard to say whether Kimley-Horn will decide this year to go ahead with a Roth contribution as the default, McEntee says. In part, the company would like to see a few more employer clients of recordkeeper T. Rowe Price do it and learn from their experiences. “It’s a cutting-edge idea,” he says. “But it’s under strong consideration.”

—Judy Ward