Total Plan Assets/Participants: $180 million/1,551
Participation Rate: 91.94%
Average Deferral Rate: 6.8%
Default deferral rate: 6%
Default Investment: American Century One Choice series target-date fund
Match: 50% of up to 6%
Plans: 401(k) profit-sharing plan and employee stock ownership plan
TEN PERCENT of JE Dunn Constructions Co.’s profits go toward the philanthropic arm of the company—this family-owned business is a strong believer in sharing success not only with its employees but also with the community of Kansas City, Missouri, where it is headquartered and beyond.
Since its beginning in 1924, the company has followed this tenet from founder John Ernest Dunn: “Get the best people you can get, give them interesting and challenging work, and let them share whatever rewards there are in the company.”
With that commitment in mind, JE Dunn’s 401(k) profit-sharing plan and employee stock ownership plan (ESOP) focus on employees attaining a sustainable retirement. And though the recession forced it to shave 1.5% from its profit-sharing contribution, the company has been working to offset the loss. Last year it upped its match from a maximum 2.5% to 3%, and JE Dunn aims to restore or increase its profit-sharing amount as its own profitability improves.
For most of the company’s existence, JE Dunn had about 300 employees between two locations. Grant Arends, president of Alliance Benefit Group of Kansas City Inc., JE Dunn’s adviser and recordkeeper, says, “It was relatively easy to communicate in all the old-fashioned ways such as in-house, face-to-face meetings, paper communications, etc.”
But starting in 2000, JE Dunn acquired several smaller firms, and the process of assimilating them into one company dramatically changed how the plan would be managed—now it covers 2,000 employees in 20 locations. This growth in personnel, as well as the geographic expansion of the company, meant traditional communication might not be enough, Arends says. The plan committee knew that to be successful, plan design changes would be needed, too.
Getting the plan design right was important to the company leadership, Arends says, recalling that when planning for changes, William Dunn Sr., son of John Ernest, said that the last thing he wanted to see was employees on a street corner or having an unsustainable retirement because the company failed to do its part.
That philosophy led the plan committee to set a goal of having the plan replace 50% of a participant’s income in retirement. Assuming that 25% would also be replaced by Social Security, the two sources would combine for an overall 75% income replacement rate for participants.
To get there, the committee decided to take the 90–10–90 “plan for success” challenge—a behavioral finance principle of economist Shlomo Benartzi. Doing so would set the plan’s targets as 90% participation, savings rates of 10% or higher, and having at least 90% of investors enrolled in a professionally managed fund lineup.
At the time, the plan’s participation rate was 77%, the average deferral rate was 6.77%, the use of advice was 50%, and just 21% of total participants were on track to attain the committee’s new benchmark.
A look at the plan design showed room for improvement, says Stephen Best, vice president and director of compensation and benefits for JE Dunn. “In the past, new enrollees would be subject to the 6% automatic enrollment, but we never went to all employees,” Best says. “Because we knew that most employees would not opt out of auto-enrollment, we thought it was a good time for us [to do a re-enrollment], given that we had gone through several years of the automatic enrollment process,” he says.
“It was not really a long, hard slog to get people to the 15% to 18% contribution rate with the re-enrollment,” Best says
So, he says, they relaunched the 401(k) plan and performed the automatic re-enrollment, defaulting all employees at 6%. The company also set an automatic investment allocation, to align existing employees with the new standards that had been established over the past several years. “We had been communicating with employees that, for instance, if they were contributing 4%, they were leaving free money on the table and they had an opportunity coming up to change that and get the free money they were eligible for,” he says.
JE Dunn, working closely with Alliance Benefit Group, designed this re-enrollment campaign to assist employees in increasing their savings rates and attaining a diversified investment strategy appropriate to individuals’ ages and risk criteria.
“The overall concept change was that dollars in the participant’s account are not the end result of what we’re looking for,” Best says. “It’s really the replacement of income and following more standard financial planning guidance around what typical employees are going to need to save—and the percentage of their income over their working life—in order to replace enough to have a comfortable retirement,” he says.
The campaign was introduced to the JE Dunn work force through a multi-channel communication strategy, fully customized for the plan to reach its geographically and demographically diverse workers; this included delivering information through the workplace and sending it to employees’ homes. The goal was to also assure employees that everyone could choose to opt out of the re-enrollment.
In a recording studio in their office, Arends and his colleagues created vignettes about the different aspects of the plan such as custom model portfolios, the the company’s re-enrollment and reinvestment. These, plus other resources, are housed on a dedicated Web portal for JE Dunn workers to access. The digital and a traditional education rundown are available in Spanish and English, to accommodate a large group of company employees.
According to Best, if you talk to any good financial planners, the first thing they will tell you is to be smart and get as much free money from your company as you can. JE Dunn does that with its initial setup, establishing automatic enrollment with a 6% deferral rate, he says. “It was not really a long, hard slog to get people to the 15% to 18% contribution rate with the re-enrollment,” Best says. “Our match is 50% of 6%, or 3%. Profit sharing has been about 4% for the last several years. With automatic enrollment at 6%, if employees do nothing, they are at 13%. Add on a few years of automatic escalation to the 10% limit, and they are at the 15% to 18% contribution rate.”
Today, JE Dunn’s participation rate is 91.94%, an increase of 14.62 percentage points from before the re-enrollment. Out of the plan’s 1,551 active participants, 1,188 employees (76.6%) were positively impacted by the re-enrollment campaign, and $107 million of the plan’s $180 million total plan assets were reallocated to age-appropriate managed account/model portfolio strategies. Now, 92% of the plan’s active participants are invested in age-appropriate asset-allocation strategies—the plan offers both custom portfolios created by the Alliance Benefit Group LLC (ABG) and target-date funds (TDFs)—which was the company’s goal.
Ninety-six new hires who had not made an election were automatically enrolled at 6%, as were 52 employees who at that time contributed nothing and 206 employees who had been contributing between 1% and 5%. The vast majority of employees—the 571 who were contributing between 6% and 9%—had their deferrals increased by 1%.
Best says, “We basically turned the coin over and said, ‘We’re going to meet these current standards for you, and if you want to opt out and keep the investments you’ve got, that’s what you have to take action on.’ Since we had met success with new employees, it was definitely the right time to take that step.”
—Judy Faust Hartnett
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