When Texas Association of School Boards in Austin reviewed the overall retirement readiness of its employees, it was concerned about the rates of participation and deferral of employees ages 40 and younger in its $59 million 403(b) plan, according to Vera Aynesworth, director of human resources (HR).
They had always considered participant retirement readiness as a benchmark for plan success but, in 2012, with the help of CAPTRUST, set goals of 90% or more participation and 15% or more total employee and employer savings for participants.
The participation rate for employees younger than age 30 was 43%, with an average deferral rate of 1.96%. For employees ages 31 through 35, participation was at 47%, with an average deferral of 2.5%; for those ages 36 through 40, the percentages were 64% and 2.72%, respectively. At the time, the association contributed a 6% nonelective contribution to participants’ accounts after they completed one year of service. These employees became eligible for a matching contribution of 100% of up to 5% of deferrals only after five years of service, says Aynesworth.
“Our thinking at the time was to reward folks who stayed with us, but we realized it was somewhat of a disincentive for new employees to save,” says James Crow, Texas Association of School Boards executive director.
According to Nancy Cotton, associate executive director of planning and HR, “The way we were doing things wasn’t cutting it. We knew if we used automatic enrollment and changed the match, we could get folks close to saving 15% of their salary towards retirement.” She explains: “Some employees felt 6% was enough, and it’s not enough. The new structure makes them think differently.”
Having decided a change was necessary, the association eliminated the 6% nonelective contribution and adopted automatic enrollment at a default deferral of 5% of pay. The company matches 200% of up to 5% of deferrals. But, Aynesworth says, the association worried that some employees would feel being required to save was a hardship and would see the change as something taken away.
“We dealt with the change for employees by giving them all a one-time 2% bump in salary,” says Crow. “There was no obligation to put that 2% increase in the 403(b) plan, but we told them, if they did, we would match it two for one, getting them back to the 6% they had been given freely before.”
“Employees realized how generous it was for us to do this replacement,” Cotton says. “They were appreciative.”
According to Cotton, in tandem with the change to the plan, the association contracted with its adviser, CAPTRUST, to provide individual advice to employees.
The adviser educated the participants about the plan changes and offered such sessions. The adviser is contracted to supply one-on-one sessions twice per year and is available by phone any time, Aynesworth adds.
Since the change, the participation rate for employees younger than age 30 has risen to 84%, and their average deferral rate is 5.08%. For employees ages 31 through 35, participation is 95%, with an average 5.71% deferral, and, for those 36 through 40, rates are 94% and 5.43%, respectively.
“We’re really proud of our plan and appreciate the guidance and assistance of CAPTRUST and our recordkeeper, Transamerica, in transforming the plan and making sure it could be administered,” Crow says.
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