Total Retirement Offering (TRO)

North American Lighting

Plansponsor of the year winner icon WINNER
John Key
Total Rewards Manager
  • Plan(s)
    401(k)/profit sharing; nonqualified plan; deferred compensation
  • Total Plan Assets
    $395MM for 401(k); $5.6MM for nonqualified; $2.5MM for deferred compensation
  • Number of Participants
    6,000 for 401(k); 40 for nonqualified; 7 for deferred compensation
  • Participation Rate
    95.6% for 401(k); 60% for nonqualified; 50% for deferred compensation
  • Average Deferral Rate
    7.8% for 401(k); not reported for nonqualified plan or deferred compensation plan
  • Default Deferral Rate
  • Default Investment
    Principal LifeTime Hybrid
  • Automatic Enrollment
  • Automatic Escalation
  • Employer Contribution
    3% nonelective contribution + profit sharing, typically 5.5%
  • Provider(s)
    Recordkeeper: Principal Financial Group; Adviser: Lockton Investment Advisors
  • Financial Wellness Educators(s)
    Principal Financial Group, Lockton for all plans

PARTICIPANTS IN THE 401(K)/PROFIT-SHARING PLAN of North American Lighting, Inc. (NAL), have a big head start on saving enough for their retirement: They’ve been getting an 8.5% employer contribution to their accounts virtually annually.

This Paris, Illinois, manufacturer of vehicle lighting makes a 3% nonelective contribution, plus it shares profits to the amount of 5.5% of pay most years. “From a strategic standpoint, our retirement plan is an important part of our efforts to attract and retain good employees,” says President and Chief Operating Officer (COO) Kirk Gadberry. “One thing I often say to our employees is that, for us and for our competitors in the industry, we are in similar buildings with similar equipment and in similar geographic areas. The thing that differentiates us is our people. I see that sizeable expense as an investment in our team.”

Plan Design Basics

North American Lighting offers three retirement plans: a 401(k)/profit-sharing plan, a nonqualified plan and a deferred compensation plan. It has had the nonqualified plan for about 20 years, making it available to senior-level managers. “As their income increases, if they’re maxing out their 401(k) contribution, it becomes harder for them to save enough to sustain their income in retirement,” says Total Rewards Manager John Key. “The nonqualified plan was created so these individuals could put post-tax dollars in their account.”

The deferred compensation plan was started in 2019, for NAL leadership executives. “As we look to the financial future for our executive team, this [plan] allows them to defer their bonuses,” Key says. “It gives them another outlet to set themselves up so they can have a sustainable financial future.”

The 401(k) plan automatically enrolls new employees at 6% and automatically escalates them 1% a year up to 10%. So even in the first year of participating, an employee usually gets a 9% total—employer plus employee—contribution, and that rises to 18.5% over the next four years. Profit sharing goes into effect after 12 to 18 months, depending on the person’s hire date.

“NAL has had the 3% nonelective contribution for a long time,” Key says. “We encourage employees to contribute a minimum of 10% of their pay to their retirement account every year, but not all of them do that.” By making a contribution whether or not an employee does, he says, the company helps the person make progress toward being able to retire on time and enjoy his retirement.

The profit sharing is a discretionary amount that has been 5.5% of eligible wages—i.e., base pay—for 24 of the past 26 years. That contribution dipped to 2.75% in only two years, one being last year, but the company anticipates a return to 5.5% profit sharing for 2021.

“We have many employees who have been with us 20 or even 30-plus years,” Key says. Long employee tenures make sense to achieve manufacturing precision, in order for NAL’s products to maintain their market-share leadership, he says. “Even for an entry-level position here, you’re talking about six months to a year of training, to become proficient. For other positions here, proficiency could take years.”

A Focus on Fees

North American Lighting decided to start covering all of the administrative expenses for the 401(k) plan, effective last year. By its paying for both recordkeeping and advisory services, Key says, NAL saved participants about $100 each in administrative fees, at a total cost to the company of $600,000.

NAL’s decision to start paying administrative fees is consistent with the recent trend among leading-edge employers, says Mark Fry, who serves NAL in his role as a senior relationship manager with Principal Financial Group, which recordkeeps the company’s three plans. “As plan sponsors look at the landscape, and especially the litigation landscape, this is an avenue they can take to reduce litigation risk,” he says. “More importantly, it really provides an additional perceived benefit for employees. If the employer is picking up the expense and that money is not coming out of participants’ accounts, it allows their balances to continue to grow more, over time.”

The decision also is consistent with North American Lighting’s philosophy as an employer, Fry says. “I think NAL is very paternalistic, in terms of how it approaches its benefits plans,” he says. “Its objective is always to look at how it can best serve—and invest in—its employees.”

Principal produces an annual report for NAL that benchmarks the 401(k) plan’s recordkeeping, investment and advisory fees. Fry declines to say whether the company has renegotiated its recordkeeping fee with Principal recently but adds, “We review the fee on an annual basis, to make sure we’re well within the peer benchmark.” The plan’s adviser, Lockton Investment Advisors, also works with NAL on its benchmarking.

The NAL 401(k) plan’s investment menu includes 33 mutual funds. Investment fees average 44 basis points (bps), and fund fees range from 2 basis points to 141 basis points. Fry says the nonqualified plan and deferred compensation plan each have their own investment menu, because they’re utilized by a much narrower range of participants, usually more knowledgeable investors.

Principal does an analysis for the client of the net cost of the 401(k) plan’s investments, which has helped ensure fee reasonableness, Fry says. “It’s very easy for plan fiduciaries to say, ‘Let’s just use all zero-revenue-share funds,’ or ‘Let’s use indexing across the board,’” he says. “North American Lighting not only has some low-cost index funds in its plan, but it also said, ‘Let’s include some investments in the active-management space that are the most [cost] efficient.’”

The NAL 401(k) plan credits any revenue sharing paid by the plan’s actively managed investments back to the participants invested in those funds. That arrangement actually leads to lower participant costs in some cases, versus utilizing only zero-revenue-share funds, Fry says. “That has been a very important analysis for [NAL], to make sure it’s getting the best deal for its employees,” he says.

—Judy Ward

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