Total Plan Assets/Participants: $389.4 million/3,859
Participation Rate: 100%
Average Deferral Rate: 9%
Default deferral rate: 6%
Default investment: Target-date collective investment trusts (CITs)
Match: Dollar for dollar on both the mandatory contribution and the automatic enrollment initial deferral
FROM their first day on the job, all employees at McCain Foods USA, Inc., see total contributions into their 401(k) account equal to 12% of their pay; they also, as of 10 years ago, make a mandatory 3% contribution, which the company, headquartered in Lisle, Illinois, matches 100%.
The $389.4 million plan has 3,859 active participants and, obviously, a 100% participation rate. Participants defer an average of 9%, plus the company’s 6% contribution, for an average of 15% of pay going into their 401(k) accounts.
Compare that with a 10.2% average for all 401(k) plan clients at Vanguard, McCain’s recordkeeper. The hefty contribution rates go a long way toward explaining why McCain has the highest score of any of the recordkeeper’s 401(k) clients on the Vanguard Plan Effectiveness Index (PEI), a tool to help sponsors measure their plan’s success. McCain has a total PEI score of 95.
“The day you walk in the doors at McCain, you’re starting out with a solid foundation,” says Hal Eaton, a Malvern, Pennsylvania-based senior relationship manager at Vanguard, who works with the plan. “Without participants doing anything, they are at 12%.”
McCain supplies frozen-potato and snack-food products to food-service markets. Much of its business focuses on making frozen french fries that it sells to companies such as McDonald’s Corp., Wendy’s International LLC and Burger King Corp. The company says it produces one-third of the world’s fries.
At McCain, paternalism makes sense from both a philosophical and a business standpoint. Company President Frank Finn traces the paternalistic philosophy back to the beginnings of the 57-year-old, family-owned and -operated parent company, McCain Foods Limited, Inc., of Toronto, Canada. “There was an over-arching desire by the company’s founders to do the right thing for employees,” he says.
According to Finn, McCain’s founders set the tone that a healthy company needs healthy employees. “We look at a holistic employee-benefits perspective that includes both financial health and physical health,” he says. “A financially healthy work force is critical.”
Asked about the business case for offering generous retirement benefits, Finn talks about the importance of having tenured employees work with McCain’s customers. “The food-service channel requires a greater degree of continuity and understanding of the business,” he says. Finn believes that the more McCain can keep long-term employees with in-depth knowledge of that industry—an effort helped by a generous plan benefit—the more “our customers understand our value propositions and the people who stand behind them, versus [dealing with] a revolving door of employees.”
Many long-term employees work at the company; the average age is in the 40s, and 40% are 50 or older. The company has plants in places such as Grand Island, Nebraska, and Othello, Washington. “Many of our employees are in smaller towns—we tend to be located where there are a lot of potatoes,” says Christy Goldberg, director of total rewards, Americas. “In smaller towns, if you’re happy where you’re working, you’re going to stay at that company.”
Asked about the business case for offering generous retirement benefits, Finn talks about the importance of having tenured employees work with McCain’s customers.
That, in turn, influences the 401(k)’s plan design. The mandatory 3% contribution “seems like a foundational start for [McCain] employees—a cultural and paternalistic thing that goes back to their founding,” Eaton says. “Automatic enrollment fits well with that paternalistic philosophy.”
Employees get into the habit of saving enough for retirement from the beginning. Even before someone starts working at McCain, during the interview process, that person hears about the Automatic Core mandatory contribution and automatic enrollment. The offer letter sent to an individual about a job again mentions the mandatory 3% contribution. “We explain to new hires, ‘From your first paycheck, we will take out 3% for Automatic Core and match it dollar for dollar,” Goldberg says. “And we tell them we will take out another 3% for automatic enrollment and also match that dollar for dollar.”
She continues, “We start them off with 6%, and we’re matching at 6%. Basically, we start them off with the full match, and because we start talking to them about saving for retirement from the get-go, people are used to it from the first paycheck. So we get very little ‘noise’ about it.” Employees are not allowed to opt out of Automatic Core, and the 99% participation rate in automatic enrollment means that very few have declined that savings opportunity.
As a result, 100% of McCain participants have a balance in the plan, and 95% have reached or exceeded the individual savings targets they need to have sufficient retirement savings, according to the Vanguard PEI. That compares with a scoring range of 61% to 83% among the middle 50% of all Vanguard recordkeeping plan clients. And with so many employees either defaulted into a target-date fund (TDF) or choosing a managed account, 81% of McCain participants have an investment strategy, versus an average 62% among Vanguard clients in general, the PEI shows.
To help ensure the effectiveness of the plan design, McCain’s participant education focuses on targeted and actionable information for employees.
At each location, an employee joining McCain gets a one-on-one benefits orientation meeting with the local human resources (HR) staff. New hires also receive a packet containing retirement plan information such as the plan basics, an investor questionnaire that helps them gauge what investment mix would work best for them, and information about Vanguard’s managed account offering. “All of these things are really setting the tone,” says Kim Weber, manager of benefits.
The “stoplight” evaluation that each participant receives annually illustrates the targeted and actionable approach to saving. A participant gets a personalized one-page review that reports on performance in three areas: investments, savings and projected retirement income. There’s a green, yellow or red traffic-light icon pictured for each, to communicate the status clearly.
The one-pager then gives concise suggestions about how that participant could take action to improve in each section, such as increasing the deferral. “The concept of a stoplight is familiar to employees and easy to understand,” Weber says. “We’re really trying to make it as simple as possible.”
Further, McCain works closely with Vanguard to customize communications according to participants’ life stage. Last year, McCain did a campaign encouraging participants to save more, with written materials tailored to different age groups. An employee in his 20s may, for example, be sent a letter that pictures someone of similar age, and emphasizes the key message: “70% percent of your peers are saving more than you in your retirement plan.”
Says Weber, “We want to ensure that the right message gets to the right participant at the right time.”
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