Total plan assets/participants: $358 million/16,000
Participation rate: 67%
Default deferral rate: 5.6%
Additional retirement plan: Defined Benefit
Imagine a deferred compensation 457 retirement plan that has no automatic enrollment feature, no employer matching funds and little in the way of paid support staff. Now imagine that, despite these challenges, the plan’s participation rate stands at 67% of a little more than 12,000 employees.
Impossible? Not really, because these are the exact circumstances in which the City of Austin 457 Deferred Compensation Plan finds itself. In the last six years alone, the program has burgeoned from 50% participation, and from $110 million in plan assets to $358 million. The 457 acts as a supplement to the defined benefit (DB) plan that city employees already enjoy. In light of this supplementary approach, the 67% participation rate is all the more extraordinary.
How did the program achieve such successful numbers for plan participation? Volunteers and lots of enthusiasm, says Tim Atkinson, the chair of the plan committee. Atkinson came on board six years ago and has headed the committee for the last five. During this time, he says, new people with drive and fresh perspectives have joined him. “We have a great committee with very outgoing people, several of them young and also energetic. I think they get caught up in the ‘magic’ of helping other city employees succeed in gaining financial stability,” he says, adding that the volunteer component allows participants to contact a fellow employee when they have questions about the plan, rather than someone in human resources (HR) or a company official.
The city’s 457 defined contribution (DC) plan administration is definitely unique in the retirement plan community, according to Jamie Ohl, president of Tax-Exempt Markets for ING U.S. Retirement Solutions, the program’s recordkeeper for the past four years. “Unlike other defined contribution plans that typically have a dedicated person paid to oversee day-to-day plan activities, the City of Austin plan is run by a committee of volunteers who oversee plan direction to ensure employees receive the necessary services to take them to and through retirement,” says Ohl, who works out of Windsor, Connecticut.
According to Ohl, the fact that the plan does not offer a match or employer contribution underscores the importance of a strong partnership between recordkeeper and plan committee to educate employees about the need to participate. The plan’s high participation rate, she says, proves this successful partnership.
The plan makes a concerted effort to share information about its benefits with employees—be they police officers, firefighters, librarians or finance staff—wherever they happen to be. Atkinson, a policeman, says plan volunteers go where the people are. “Instead of just hitting some of the big events, such as new employee orientations—which we still do—we also go to police and firefighter cadet graduations, safety fairs for city employees, promotions for checking blood pressure, or job fairs. We always have someone there who can talk to employees about the plan. With a city the size of ours, that’s a whole lot of events throughout the year,” he says.
Ohl characterizes the plan committee as proactive, diligent and progressive. The partnership between committee and recordkeeper continues to flourish, due in part to personalized attention city employees receive from two full-time ING U.S. liaisons. “In the last three years, these local representatives have conducted more than 1,300 educational seminars; engaged in nearly 19,000 points of contact with employees and retirees; and enrolled nearly 2,000 new employees into the plan,” she says.
In terms of individualized service for city employees, Atkinson says the program also makes good use of one-on-one meetings as a way to help people be more comfortable asking questions about the plan. Annually, the plan holds almost 400 larger group meetings and hundreds of one-on-ones. The personal approach removes the intimidation or “stage fright” factor, he explains. “Everybody is afraid of asking a dumb investment question, such as: ‘What’s a mutual fund?’ or ‘What’s an ETF [exchange-traded fund]?’ But speaking to you individually, they are more likely to ask.” Overall, meetings have been increased over the years to ensure as much participant input and ownership as possible, he says.
In addition to meetings, the program conveys information to city employees through both electronic and printed materials. According to Atkinson, each person has his own quirks about how he likes to receive information, with preferences often being dictated by age. “All of our employees have email accounts, and we have a pretty well-educated work force. But, with generation or age, you can see tremendous differences when it comes to information delivery. Younger employees want information electronically, not on paper. They want ‘direct push’ messages and notifications,” he says, referring to having new plan information sent to them once it is available.
ING U.S. also does its part in keeping city employees looped in, says Ohl. “As part of our commitment to advancing retirement readiness, we provide city employees with access to decision tools to assist with their asset accumulation, asset protection and asset distribution needs, as well as custom communication and financial education programs designed to engage and motivate employees to save.”
She also acknowledges that the success of the plan depends on meeting the savings and planning needs of city employees. One way to aid in this is to send the type of information they want via their preferred means of communication—e.g., mobile device, in-person meeting or phone call. “Through new technology and communication strategies,” Ohl says, “our goal is to educate and motivate employees by reaching them when and where they want to connect, talk, learn and act.”
On the electronic side, the program has launched a new website, built over the last 12 months by ING. The plan committee is heading up efforts to use Facebook and Twitter to convey information about the plan, starting the first quarter of next year, Atkinson says.
Older employees are lesser fans of pushed information, he notes. They opt for direct mail and paper materials instead. “They want to share the materials with their spouse or meet with other employees of similar age and talk about it together. And they feel they need to have something paper in hand to do that,” he says.
Upgrading Plan Design
In terms of using plan design to further plan participation, Atkinson has some specifics in mind. He and the plan committee are in the midst of developing a management system that will default employees into an asset allocation based on their age and length of service, as recorded in the payroll pension system.
“The system will default employees into a target-risk fund, very similar to a target-date fund [TDF]. But with, for example, a 2018 target-date fund, you can’t have a firefighter retiring at age 48 and a librarian retiring at age 62. So, the employee’s age, pension fund and earnings, as well as retirements before age 50, will be taken into account to determine the correct risk fund,” he says.
As for an ideal plan design for maximizing participation in an environment that does not utilize auto-enrollment, Atkinson says, “There should be some kind of ‘Help me!’ feature that employees can access so they don’t have to do the work themselves: [something] with investment options such as a target-date or some type of stable value fund, where people understand that they’re getting a fixed rate of interest and they feel good with that—and also some vetted, inexpensive core funds. It has to be a very small list, so that it’s easy for the participant to understand.”
According to Atkinson, the overall improvements to the 457 plan come from “us looking internally to see what we can do better.”
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