RETIREMENT READINESS: A 2012 study of retirement readiness among 401(k) participants at Republic National Distributing Company (RNDC) found just 30% were on track to replace 70% or more of their income in retirement. Since 2013, when the company began annually increasing the deferral rate, that number has risen and now stands at 52%.
Previously, the plan automatically enrolled new hires at 2%, but it had no auto-escalation feature for participants. “Associates were automatically enrolled, and then they never went in and changed their deferral rate,” says Francie Purnell, corporate director, retirement plans, at the wine and liquor distributor, which maintains facilities throughout the U.S. For true retirement security, she says, “that was not going to cut it.”
The plan initially increased the automatic contribution rate to 3% and currently enrolls new hires at a 5% deferral. In June, that will increase to 6%. In 2013, the plan also re-enrolled at 3% existing participants who had been saving less than the 3% automatic level. The re-enrollment threshold has since increased to 5%, and it is due to rise again, to 6%, in June. Existing participants get re-enrolled with their previous investment choices, not the target-date fund (TDF) default. In lieu of automatic deferral increases, RNDC annually makes a decision as to the deferral rate, because that gives the company more flexibility to gauge participant reaction, Purnell says.
RNDC now has $465.9 million, 7,232 participants, a 95% participation rate and an average participant deferral of 6.71%. Also boosting participants’ account balances: Recent efforts to lower plan costs have resulted in an 11% average decline in investment fees and an 80% decrease in administrative fees.
The plan has a match of 50 cents on the dollar up to 8% of pay an employee contributes. Purnell says the company hopes within the next few years to feel comfortable enrolling new hires and re-enrolling existing employees at 8%.
The company also started a nonqualified plan for its highly compensated employees in 2012, after the 401(k) faced nondiscrimination testing issues. When the plan previously failed testing, Purnell says, it had to refund employees up to 40% of their contribution, and employees forfeited any match they had gotten on that money. “So we said, ‘Let’s stop that hemorrhaging. Highly compensated employees now can contribute a maximum of 7% of pay to the 401(k).
The nonqualified plan has approximately 70% participation, with enrollees saving an additional 15% to 20% of pay on average. In addition to solving the 401(k) testing problem and making it possible for those participants to contribute more, the new plan allows highly compensated employees to save more for retirement.
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