Total plan assets/participants: $3.7 billion/29,872
Participation rate: 96%
Average deferral rate: 37.1%
Average participant income-replacement ratio: 77%
Default deferral rate: 10%
Default investment: Age-based target retirement trust
“It’s important to understand where retirement fits into our broader strategy,” says John Casey, director of benefits at Google, in Mountain View, California. “Retirement is a cornerstone of our financial-wellness strategy. However, it’s only one component.”
According to Casey, Google hires many young employees who have diverse career plans. “Retirement is a traditional concept,” he says. “And the concept of getting to 65% replacement income or 80% replacement is an old concept. When we speak to our employees, they say it’s about ‘financial independence.’ But what does financial independence mean to a 20-year-old? Not necessarily that they’re going to stop working when they’re age 65. It’s a more personalized thing.”
Defining the company 401(k) plan’s success by whether employees reach an income-replacement ratio that was set by Google makes no sense to the search engine company, Casey says. “What makes sense is asking, ‘Do employees have the right tools and education to make informed decisions about their retirement?’ At the end of the day, people have all these competing needs and they shouldn’t just focus on retirement.”
So, when talking to employees about saving for retirement, Google broadens the conversation by encouraging them to think about their personal savings goals overall, Casey notes. “Do you want to save for the down payment on a house, for example? And how can you achieve that while not letting your 401(k) contribution disappear?” he says. “They’re making trade-offs. So we look at, how can we help them to decide what are the right trade-offs for them?”
The company wants employees to start saving for retirement early and put away as much as they can, says Yvonne Agyei, Google’s vice president of benefits. “We want Googlers to be retirement ready, but we also have an awareness that that’s going to be different for everybody,” she says. “We want Googlers to have a picture of their own financial health, and we want them to make the right decisions based on their goals.”
Google aims to “provide the right tools for them to make those decisions,” says Amy Chang, the company’s financial benefits program manager. “We want to make sure Googlers feel supported. But we do not just want them stretching too much [financially] to hit goals we set.”
Although Google declined to discuss specifics about its employee demographics, the plan stats make clear that most of the firm’s employees do include the 401(k) in their financial goals: The plan has 96% participation, an average deferral rate of 37.1%, and each year about half the employees max out on the annual 402(g) contribution limit ($17,500 this year and last). The $3.7 billion plan has 29,872 active participants.
Maxing Out Contributions
Having a plan with an average 37.1% contribution rate has its own special considerations. For instance, what is the right automatic enrollment deferral rate for that employee group? Last January, Google increased its auto-enrollment default from 6% to 10% for new hires. “We know that 6% is pretty average out there,” Chang says of other plans’ default deferrals. “We just felt that stretching it was something Googlers could get used to.” The company declined to disclose its match formula.
With so many employees looking to maximize their contributions, Google now gives them a mid-year reminder of where they stand in relation to the 402(g) contribution limit. The past two summers, the plan sent employees a personalized email specifying how much they had contributed so far for the year, as well as how much they were on track to defer by year-end. Its recordkeeper, The Vanguard Group Inc., has developed a speedometer-like image that Google will start using this year to give participants a quick visual sense of where they stand versus the annual 402(g) limit.
Google likes to provide what it calls a “nudge” in communicating with employees about their retirement savings. “What they’re really looking for is to give participants the next ‘best action’ to take,” says Lisa Durkee, a Vanguard relationship executive, based in Scottsdale, Arizona, who works with Google’s plan. “They don’t want to nudge them so far that they don’t take any action. They want to make sure they are putting the right information in front of them at the right time.”
Having maxed out on 402(g) contribution limits, many employees want additional ways to save for the long term. Google already offers a Roth feature in its 401(k), and this year the company intends to let participants start doing in-plan Roth conversions. Google has yet to limit how much employees may contribute to the Roth feature, Chang says, so they need only comply with the 415(c) contribution limit.
Providing “Just in Time” Information
The mid-year “nudge” email about participants’ contributions typifies how Google likes to communicate with employees about their 401(k). “Googlers are a little more hands-on, and they like getting their personal information,” Chang says. “We try to make the information convenient and easy for [them]. If you think about what we are offering as a company, Googlers sort of expect the same thing from us.”
Google has learned a lot from its core business about how people react to receiving information. “There are many, many points of decision where you can lose people,” Casey says. “For our [participant] user experience, part of our strategy is being very personal and very straight to the point.” For example, the company may send a brief email to employees asking, “Did you know that you are leaving money on the table?” Employees can then click a link in the email and see a note explaining that $X (the amount is personalized for each employee) is how much they could lose that year by not contributing enough to meet the company match.
“It’s very much ‘just in time’ information, as opposed to sitting down for a 45-minute meeting,” Casey says. “We’re not saying, ‘You need this income-replacement ratio.’ That’s just an assessment. You don’t know what else is going on in their lives.”
Once employees have the information they need and decide to make a change in their 401(k), Google wants them to be able to act immediately. If people lack the wherewithal, the likelihood they will follow through drops. So, the company has worked with Vanguard over the past few years to move more participant services online, for instance by opening a brokerage window.
“‘Seamless’ is a key word for us,” Casey says. “Our goal is for Googlers to be informed to make the right decisions for themselves and their families. And we want to make sure that when they’re ready to take action, they can.”
And yet, even at Google, offering participant services online has its limits. At press time, the company was finalizing plans for a Vanguard staffer to begin working at its headquarters campus as an “on-site concierge.” The Vanguard representative will be available to Google employees to provide education, not financial planning or investment advice. This person will answer questions about the 401(k) as well as assist Google in its broader financial-wellness program, Chang says.
Google has other concierges on-site for employees to consult about other benefits, such as health care. Agyei says it is true that even Google employees want to handle some issues in person. “Some things they do online,” she says. “Other things are ‘high touch,’ and Googlers like to talk to someone.”
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