Total Retirement Offering

Sumitomo Machinery Corp. of America

Michael Lulofs
Senior Director, Human Resources
  • Plan(s)
    401(k); DB
  • Total Plan Assets
    $44.7B in 401(k); $41.0B in DB
  • Number of Participants
    394 in 401(k); 555 in DB
  • Participation Rate
  • Average Deferral Rate
    Average Deferral Rate
  • Default Deferral Rate
  • Default Investment
    Principal LifeTime Separate Accounts
  • Automatic Enrollment
  • Automatic Escalation
  • Employer Contribution
    50% of 6%
  • Provider(s)
    Recordkeeper, Principal Financial Services, Inc.; Adviser, Capitol Securities
  • Financial Wellness Educator(s)
    Principal Financial, Capitol Securities, FinFit

Forty percent of employees have been with the company for 10 years or more.

Sumitomo Machinery Corp. of America has a couple of strategic reasons for keeping its fully funded defined benefit (DB) plan active, along with offering a 401(k) plan: recruiting and retention.

“In our [machinery manufacturing] industry, it definitely helps us to attract the kind of employees we want,” says President and CEO James Solomon of Sumitomo in Chesapeake, Virginia. “And we want to have a lot of long-term employees at this company. Having the pension plan is definitely a differentiator for us. Even though it costs more than a typical DC [defined contribution]-style retirement benefit, we feel it’s important to support our employees, because we’ve got so many long-tenured employees. We want them to know that, when they retire, they’ll retire with a healthy financial situation.”

Employees start participating in the pension plan on the January 1 after they’ve completed six months of service. They reach full vesting in the pension plan after five years of service.

“Our pension plan is designed to replace 1% of pay for each year of service, up to a maximum of 25 years,” explains Senior Director, Human Resources (HR), Michael Lulofs. Between the pension plan and 401(k), he adds, “We like to see people be able to replace at least 70% of their income in retirement.”

The 401(k) serves its own strategic purpose. Sumitomo aims for the pension plan to provide retired employees with a foundational benefit, but not to replace their pre-retirement income completely. “The 401(k) is a good way to supplement that,” Lulofs says. “When you have a pension plan, there’s always the risk that your employee base will say, ‘Well, I don’t have to worry about my retirement, because my employer has me covered.’ The 401(k) enables our employees to have a well-rounded financial plan.” Employees become fully vested in the 401(k) after five years of service.

To help boost participation and deferrals, in 2018, Sumitomo started doing an annual 401(k) re-enrollment. “We do a ‘sweep’ in April of each year, for every eligible employee who isn’t participating or whose contribution is below 6%,” Lulofs says. “The timing of April is intentional, because that’s when employees get their annual pay increase, so they don’t feel it as much.”

In the two sweeps so far, a total of 69 re-enrolled employees stuck with the 6% default deferral, out of 394 current participants. Sumitomo sets the match at 50% of 6%, so the 6% deferral gets employees maximizing the match immediately, Lulofs says.

Recordkeeper Principal Financial Group’s Retirement Wellness Score finds that about 60% of participants in the 401(k) now are on track to replace 70% or more of their income when they retire. To help encourage more participation and higher deferrals, Principal comes on-site to do group meetings and offers online tools.

Sumitomo also pays for employees to meet, free of charge, with a Certified Financial Planner (CFP) from the plan’s adviser, Capitol Securities, to develop a personal financial plan. Capitol Securities comes on-site to Sumitomo facilities at least a half-dozen times a year, Lulofs says.

“We’ve got such a mix of employees here, from those in entry-level jobs to highly skilled engineering positions. We have young people on our staff and people close to retirement—and they all have different financial situations,” Solomon says. “We know how expensive it is for someone to have a plan like this done outside the company by a financial planner.” And, for Sumitomo, he adds, “We know that anytime you’ve got employees who have financial struggles, that affects their work negatively in some way.”

Judy Ward

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