Some defined contribution (DC) plan sponsors are embracing the idea that, by stretching their employer match formulas, they can encourage participants to save more. This trend has been implemented and is showing positive results in Moffitt Cancer Center’s 403(b) plan.
Before the plan was changed, the organization’s 403(b) plan auto-enrolled participants at a 4% salary deferral. If participants deferred 1% more, Moffitt matched 25% of that 1%. According to Michele A. Talka, director of human resources (HR) operations at the center, which is located in Tampa, Florida, “This [strategy] had been in place for 25 years and didn’t keep pace with the changes in the retirement landscape.
“The old plan design had the unintended effect of making employees feel they were being taken care of and that ‘enough’ was being put into their accounts by Moffitt, so they didn’t really need to contribute any more to their retirement,” she says. “We had too many ‘nonparticipating’ participants [those who deferred no more than the plan’s default percent] and too many saving too little to actually make their retirement financially possible. There needed to be a shared accountability, with employees taking control of their retirement savings and planning.”
The organization altered the match formula so that the more participants save, the more match they receive. Now the company matches 100% on the first 3% participants defer and 50% on additional deferrals up to 7% of pay. Talka says Moffitt also shortened the plan’s vesting schedule so employees are 100% vested in the match after three years of service instead of five.
Moffitt knew this was a big change for employees, so it started educating them four months in advance. “We did 20 live presentations by Moffitt’s staff because we wanted it to be personal, and we wanted participants to know we are there for them,” Talka says.
But they did not merely talk about the change; meetings included a general educational session about how retirement savings expectations have evolved and how the old plan design from 25 years ago no longer fits.
Since the change, the overall plan participation rate has been 93%; the average deferral rate has been 7.05%, “and those saving at a 10% or higher [rate have] increased from 20% of participants to 28% of participants,” Talka notes.
According to Talka, a handful of people out of the approximate 4,500 staff complained about needing to do more to get the employer contribution; some said they could not afford it. But most feedback was positive.
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