HEADQUARTERS: Appleton, Wisconsin
TOTAL PLAN ASSETS/PARTICIPANTS: $40.1 million/500
PARTICIPATION RATE: 97%
AVERAGE DEFERRAL RATE: 6.84%
DEFAULT DEFERRAL RATE: 3%
DEFAULT INVESTMENT: Vanguard Target Retirement Funds
EMPLOYER CONTRIBUTION: 50% up to 8%,
plus 3% discretionary contribution
ADDITIONAL PLANS: Not Applicable
As CFO of Air Wisconsin Airlines Corp., Stan Petersen-Gauthier uses behavioral-finance thinking to make decisions about the company’s four 401(k) plans. “The traditional ways of simply enrolling and educating participants will not help participants overcome the behavioral-finance hurdles they face in building their retirement savings,” says Petersen-Gauthier, also a senior vice president and treasurer at the Appleton, Wisconsin-based regional carrier.
Air Wisconsin sponsors one 401(k) plan for salaried employees and three union-employee plans: The $40.1 million plan for salaried employees has 500 participants, and the three union plans have a total of approximately $141 million in assets and 2,100 participants.
The sponsor has been utilizing behavioral-finance concepts in its plans for nearly a decade. “We believed that we could do better than the initial 401(k) plan designs and promotional concepts from the 1980s and 1990s that were not engaging our workforce or helping them with the burden of constructing and managing their retirement savings,” Petersen-Gauthier says. So in 2008, the sponsor hired an investment adviser and added professionally managed portfolios. The plan also improved its participant communication and education on financial security and retirement planning.
Air Wisconsin implemented automatic enrollment at 3% for the salaried-employee plan in 2011. That plan had originally capped the 1% annual auto increases at 8%, but with many participants now reaching that point, increased it to 10% this year.
The salaried plan also added annual reenrollment in 2015. All eligible employees not participating, as well as participants contributing less than 3%, now get reenrolled each January 1. “Less than 5% of participants opt out annually,” says Sarah Peters, director of benefits and risk management.
In 2015, Air Wisconsin changed the match formula for the salaried-employee plan, to incentivize higher deferrals. It previously provided a 4% discretionary contribution by the employer, plus a match of 50% up to 6%. Last year, the sponsor switched to a 3% discretionary contribution plus a match of 50% up to 8% (for a total potential 7% employer contribution). “This change was designed to increase participant contributions,” Peters says.
And for the past three years, the sponsor has utilized as a benchmark of plan success the 90-10-90 measurement concept developed by Shlomo Benartzi, a behavioral economist at UCLA’s Anderson School of Management. That benchmark focuses on reaching 90% participation, a 10% average deferral, and 90% of participants in a professionally managed portfolio.
At 97% participation, the salaried-employee plan already has exceeded the 90% participation goal. With auto increases now in place up to 10%, deferral rates currently averaging 6.84% in the salaried-employee plan should reach the 10% goal within three to four years, Peters says. And with participants now automatically enrolled or reenrolled into target-date funds, the percentage in a professionally managed portfolio is just a couple of percentage points below the 90% goal.
“In our committee discussions, we decided to adopt those benchmark goals because we felt it was important to focus on the most relevant factors that would help as many of our employees as possible reach their retirement-savings goals,” Peters says. “Also, these benchmarks are measurable, so we can determine the effectiveness of our strategy.”
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