Total plan assets/participants: $245 million/1,770
Participation rate: 96%
Average deferral rate: 8.4%
Average participant income-replacement ratio: 70%
Default deferral rate: 5%
Default investment: American Century target-date funds
Match: 100% of first 3%, 50% of next 7%
“It’s what really matters,” says Mike Tanner, director of compensation and benefits at O.C. Tanner, about why the company has intensified its long-time emphasis on retirement adequacy. “There is a lot of focus on the front end—what are the contribution rates, and how is the asset-allocating looking?—and accumulation is important. But you can’t tell what the results will be unless you look at the projected income-replacement ratios.”
The developer of employee-recognition strategies and rewards programs, headquartered in Salt Lake City, has a deep-rooted sense of responsibility to help employees prepare for retirement. “We are privately held, and our founder was viewed almost as a father figure,” says Tanner, who is not related to the company’s founder. “He has been gone for 20 years, but we still want to make sure we do all we can to help people retire with dignity.”
The 401(k) plan’s participants have an average account balance of $145,000, and those 60 and older have an average balance of more than $290,000. This is not because the company has overwhelmingly high-earning employees, says Charlotte Miller, senior vice president of O.C. Tanner’s People and Great Work Team. The company has a diverse work force, she says, from gardeners to manufacturing line workers to information technology (IT) professionals to salespeople. (The company withheld average salary figures.) “The average balance is probably more related to [the company’s] continual awareness” of the issue, she adds. “That has been going on for a very long time. It’s not just the cause of the day—it’s a long-term focus.”
O.C. Tanner’s recently intensified focus on retirement adequacy stems partly from the company’s culture of emphasizing consistent progress, Treasurer Jeff Bedke says. “We’re never satisfied with the way things are. We’re always looking for improvement.” The plan has been able to measure retirement readiness even more rigorously since O.C. Tanner hired Salt Lake City firm 401(k) Advisors Intermountain LLC as plan adviser. “They helped us look at it another way, with another tool,” Bedke says.
In 2012, 401(k) Advisors Intermountain did a study that, for the first time, measured the target income-replacement rates of O.C. Tanner plan participants, on both an aggregate and individual level. According to the report, employees have an average 70% income-replacement ratio (including Social Security benefits), which the consultants characterized as very high, Bedke says. Unsurprisingly, given O.C. Tanner’s mindset, the company wants to see that average increase to 80%.
To help increase participants’ retirement-income prospects, O.C. Tanner recently made several plan-design changes, including increasing the match.
Actually, the plan has sweetened the match several times in the past decade, illustrating Bedke’s point about consistent improvement. In 2004, O.C. Tanner increased the match to 75% of the first 5% that an employee deferred, and bumped it up again in 2006 and 2010. Last year, the match formula went to 100% of the first 3%, then 50% of the next 7% of pay an employee contributes, resulting in a total potential 6.5% employer match if a participant puts in 10%. The match vests immediately. Employees also get a 4%-of-pay profit-sharing contribution with a three-year vesting period.
“They changed their match formula to encourage higher contributions,” says Patricia Advaney, Harrison, New York-based senior vice president at Transamerica Retirement Solutions, the plan’s recordkeeper. “They’re really stretching that match: To maximize the match, an employee would have to put in 10%.”
Asked how she and her colleagues made the business case for raising the match, Miller cites its appeal to both new hires and long-timers. “It’s a great thing to talk about when we’re recruiting. People can see that other companies aren’t doing that,” she says. “We also have a lot of long-term employees, and it’s our way of showing that we value that long-term experience here.” Having fewer turnovers also saves the company money in the resources it puts toward hiring and training new employees, she says.
O.C. Tanner, an early adopter of automatic enrollment in 2004, also did a re-enrollment to improve participants’ investment diversification. When the plan switched to Transamerica a year ago January, it re-enrolled existing participants who had not opted out into its new qualified default investment alternative (QDIA), American Century Investments’ One Choice Target Date Portfolios. “We were trying to get everybody into a target-date fund [TDF] appropriate for their age,” Tanner says, estimating the proportion of participants now in those funds at more than 80%.
And to limit “leakage” of participants’ money from the plan, O.C. Tanner implemented more loan restrictions last January. Even before then, participants could take only one loan at a time and had a 30-day wait after repaying a loan to get a new one. Last year’s rule changed limited loan amounts. “Previously, they could borrow up to half of their vested balance—including the company contributions—up to a $50,000 maximum,” Tanner says. “Now they can borrow up to 50% of their own contributions’ vested balance, but not from the company’s contributions.”
The plan’s move to Transamerica also gave it the opportunity to offer employees one-on-one meetings about their retirement outlook, and Bedke cites that as the No. 1 reason for choosing the recordkeeper.
Last year, Transamerica staff spent four weeks holding on-site, one-on-one meetings. “The meetings were done during work time, so people got paid while they got the counseling,” Tanner says. Even manufacturing teams were let off the production line to go to their meetings. “[Employees] got an understanding of how the plan works and what they need to do to maximize their benefit,” he says.
At the meetings, Transamerica staffers sat side by side with O.C. Tanner employees, to walk them through how the recordkeeper’s OnTrack online retirement-outlook planning tool works. Employees also got OnTrack’s individualized projection of any gap between what they will need in retirement and what they are expected to receive. The tool summarizes participants’ outlook with a weather icon that ranges from rainy to sunny, depending on their specific circumstances.
The meeting “gave people an understanding of where they stand currently and an opportunity to talk about whether the tool’s assumptions were applicable for their situation,” Advaney says. Participants had two main assumptions to think about, she says: at what age they want to retire and what percentage of their pre-retirement income they will need in retirement.
About 60% of employees did a one-on-one meeting, in person or by phone. Of the 794 participants who met with Transamerica, 163 increased their contributions and 116 changed their investment allocations.
“The majority of people really appreciated being able to sit down with someone they can talk to in confidence. Trying to go out and hire a financial adviser can be expensive,” Bedke says. “And [Transamerica was] not trying to sell them something.”
« 2014 PSOY – Microsoft