Gonnella Baking Co.

In the past five years, average participant balances have grown 150%, or 2.5 times.

When Gonnella Baking Co., headquartered in Schaumburg, Illinois, froze its pension plan and implemented a 401(k) in 2011, the company wanted to retain the philosophy behind having a defined benefit (DB) plan. 

According to Chief Financial Officer (CFO) Timothy Madda, the company had three goals in mind: For starters, it wanted to provide a retirement benefit for all. The fourth-generation family business wanted a 401(k) plan design that “mirrored, in some sense, the pension benefit.” With its safe harbor design, the plan guarantees employees a 3% immediately vesting annual contribution, regardless of their own contributions, accompanied by an additional three-year cliff-vested employer nonelective contribution. 

“We don’t require a deferral—we’re not a match plan,” Madda says. “In the manufacturing environment, personal circumstances can, and do, change from time to time, but the benefit is still there” with the safe harbor design, he adds. 

The second goal of the 401(k) plan was to minimize plan expenses. By moving to a zero-revenue-sharing lineup with low-cost target-date funds (TDFs) as the qualified default investment alternative (QDIA), and other low-cost investment options, the average expense ratio was reduced by more than 60 basis points (bps); today it is less than 15 bps, Madda says. 

Gonnella Baking also started automatic enrollment in 2013, at 2%, and moved to 3% two years later, pairing it with automatic escalation. “We’ve seen really strong success there, as well,” he says, adding that less than 5% of participants opt out of auto-enrollment. 

The third goal, he says, was effective education. This was no easy task, as employees are mainly shift-workers, spread over four locations. “That has proven to be an undertaking [to educate all participants], but it’s been very effective,” Madda says. The company has a bilingual workforce and also makes sure to provide sessions in both English and Spanish.

Morgan Stanley advisers conduct group and one-on-one education sessions at the company’s various locations, and, additionally, Gonnella receives 401(k) communication materials that are regularly distributed to participants. Further, the company uses recordkeeper Prudential Retirement’s email campaigns. For example, the reminder to “check contribution levels” has been well-received, Madda says. 

Morgan Stanley offers a financial wellness program called Financially Fit, which calculates retirement readiness based on a range of factors, says Dave Schabes, Morgan Stanley financial adviser. 

Within Financially Fit, there are “a number of levers we can move” to get participants on track to retire, including increasing their savings rate, making their investments more aggressive or pushing their retirement date back another couple of years. “It gives them something objective that they can really react to and respond to in terms of being able to manage their own retirement income and their expectations,” Schabes says. 

Once participants assess their retirement readiness, they become much more engaged in their savings, he adds. 

Since moving to the 401(k) plan, Madda says, there’s been much positive feedback from participants, because they see savings in a defined contribution (DC) plan as their assets. “So there’s a lot of interest and enthusiasm in the 401(k) plan because of that,” he says. 

In the past five years, average participant balances have grown 150%, or 2.5 times. Retirement income replacement is 64%, up 3 percentage points from three years ago, not factoring in the frozen pension plan. 

Gonnella also has many union employees who are ineligible for the 401(k) plan because they are covered under two multiemployer pension plans. Both of these pension plans are underfunded and projected to become insolvent, so Gonnella has been in ongoing talks with the union to try to add this group to the 401(k) plan, Madda says. 

This year, the sponsor is contemplating a 5% auto-enrollment and an increase in the auto-escalation from 10% to a 15% maximum with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. 

“Much of our mindset has to do with, we are a startup plan and how best to position this plan for retirement security. Not in the next year or so, but in the next decade or so,” Madda says.

—Corie Hengst