HEADQUARTERS: Baltimore, Maryland
TOTAL PLAN ASSETS/PARTICIPANTS: $723,000 in 401(a); $330 million in 457(b)/10,000 participants between
PARTICIPATION RATE: 100% for 401(a); 53% for 457(b)
AVERAGE DEFERRAL RATE: 13%
DEFAULT DEFERRAL RATE: 5% for 401(a); minimum of $10 per paycheck for 457(b)
DEFAULT INVESTMENT: Managed accounts for both plans
EMPLOYER CONTRIBUTION: 401(a) non-hybrid participants receive
4% match, plus 1% for those making 457(b) deferrals; 401(a) hybrid participants receive a 3% match
ADDITIONAL RETIREMENT PLAN: DB
Running a workplace retirement plan often seems like a game of “good enough.”
Whether looking to median salary deferrals, all-in plan fees or other specific elements of plan design, many plan sponsors aim to simply match a peer benchmark to verify their plan’s success.
Baltimore, Maryland, has a far more aggressive philosophy. As explained by Timothy Coyne, the city’s retirement savings operations manager, “It’s actually a very simple goal that we have here in the City of Baltimore. We want to have the single most retirement-ready work force of any municipality in the United States, bar none.”
Coyne says this means the city wants all of its employees to be able to retire on time, with dignity, and with sufficient assets to maintain their standard of living after doing so.
This goal is pursued primarily through a mandatory 401(a) defined contribution (DC) plan with defined benefit (DB) hybrid and non-hybrid options—depending on the employee’s job title and date of hire—as well as through a voluntary 457(b) plan, Coyne says. “The city has always cared about its employees’ retirement readiness, but in recent years we have really taken this up as our responsibility and have created truly fundamental changes in the way we prepare our people for retirement.”
The city’s top-line numbers set its defined contribution programs apart from those of less dedicated cities or municipalities. The mandatory contribution to the 401(a) is a solid 5% of base salary, Coyne says. All civilian employees hired since July 1, 2014, are required to make this contribution, which, combined with optional 457(b) deferrals and the contributory defined benefit plan, puts most of the 10,000-plus people in the DC programs at, or even well above, a 10% salary deferral. For public safety employees, the contribution goal is closer to 16% of salary across the retirement programs, given that they will not collect Social Security, Coyne adds.
The numbers are particularly impressive in that approximately 75% of the city’s civilian work force is employed in the Departments of Public Works and Transportation. These are predominantly blue collar jobs with an average base compensation of around $40,000.
“To encourage those folks to set aside even a small part of their salary toward retirement was and remains challenging,” Coyne says. “With that in mind, we are very pleased about the progress these groups in particular have made within our plans.”
Coyne notes that he has been working with Baltimore’s plans for the better part of four years—stepping into his current role as the city was debating legislation to create the 401(a) plan to better complement the old defined benefit option and the supplemental 457(b). He suggests that the legislation, passed in May 2014, really got the ball rolling on the holistic plan improvement effort that continues today.
“We went from viewing the 457 plan as an ancillary benefit to making [it part of a new] competitive DC package. We benefited hugely from the fact that the mayor and the city council really stood by these changes and wanted to see the city improve its retirement benefits across the board,” Coyne explains.
The legislation provided all necessary seed funding and established the 401(a) from the ground up, mandating that all new employees start at a 5% salary deferral. As of January 2015, the new plan began taking these mandatory contributions and is rapidly approaching the $1 million in assets mark.
“The legislation also provided for a new board of trustees to oversee both the 401(a) plan and the existing 457(b),” Coyne says. “The board of trustees, in turn, created an investment advisory committee and an education and communication advisory committee. Each was given its own goals and a clearly defined charter. The reorganization has been so successful that other public plans have asked to review the committee charters as models.”
Coyne is quick to point out that the city received “tremendously effective” guidance from a variety of sources during this complex reorganization, which took the better part of 18 months and involved a wide range of fundamental plan design changes. One of the main and most difficult tasks was to make sure the right deferral and match structures were put in place to help both those with access to the hybrid DB option and those only investing via the DC options.
Empower Retirement was an especially helpful partner, Coyne says. That firm currently supplies the Baltimore DC plans’ recordkeeping, while Segal Consulting and Segal Rogerscasey provide investment advising; Wells Fargo is plan trustee.
“Baltimore’s is a simple goal,” says Anne Strine, client relationship manager at Empower’s Greenwood Village, Colorado, headquarters. She is described by Coyne and others as the quarterback of the Baltimore DC retirement plan team. “But that doesn’t mean it has been easy to accomplish,” she says, citing Coyne in particular for dedication to the city employees “and for truly making a difference in their future finances. I can say confidently that the City of Baltimore’s approach to retirement benefits is a model any municipality in the U.S. should follow.”
Strine adds that she is especially proud of the work her firm and the city put in regarding the 457(b), both from a plan quality and communications perspective. Beginning in September 2014, the board of trustees debated and then voted unanimously to change the plans’ qualified default investment alternative (QDIA) to managed accounts, Strine says. “And they streamlined the rest of the fund lineup from 22 funds to 11 funds. We made enrollment into the managed accounts a process with an opt-out feature, meaning that most participants would have to take action to opt out of being enrolled, usually requiring a phone call.”
The city went on to deliver a series of 29 benefit maximization seminars at 13 city locations between February and April last year, with the dedicated help of two other Empower staffers: Melanie Howard, a communications lead, and Jennifer Bailey, a senior communications specialist, also in Greenwood Village.
According to Howard and Bailey, the Baltimore work force could not have responded better to the seminars, which strove to clearly explain the revamped 457(b) and 401(a) plans, both individually and as a paired benefit. “Locations for these seminars included a wastewater treatment facility, the central garage, the public safety training center, Baltimore Police Department headquarters, and union halls and lodges,” Bailey says. “Nearly 1,000 employees attended at least one seminar, with more than 500 taking some direct affirmative action as a direct result of doing that, including scheduling a one-on-one retirement planning session with a retirement plan counselor.”
Bailey and Howard, along with other Empower staff, shaped and delivered helpful take-home materials to go along with the seminars, such as 457(b) enrollment, contribution increase and beneficiary designation forms. “In regard to the new 401(a) retirement savings plan, the city’s most recent efforts have focused on educating HR [human resources] business partners and those employees covered by the new plan about the differences between the hybrid and non-hybrid options,” Howard says. “The key message being conveyed to these employees is that the retirement planning staff wants to have a one-on-one conversation with each of them to help them select the 401(a) option that best suits their circumstances.” —John Manganaro
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