HEADQUARTERS: Riverdale, Utah
TOTAL PLAN ASSETS/PARTICIPANTS: $151 million/ 4,564
ADDITIONAL PLAN: DC
At a time when so many companies are ending defined benefit (DB) arrangements, America First Credit Union is staying the course. Even more noteworthy, the company continued funding the plan during the 2008 financial crisis and is in fact currently overfunded, at 155% because management consistently contributes in excess of the minimum. In 2015, for instance, the plan made contributions of more than 40% of what was needed. Following a straightforward investing strategy, the plan carefully adheres to its investment policy, which outlines a diversified portfolio of fixed-income as well as domestic and international equities. Excess funds are held in common with plan assets.
“I think a big part of it is, we’re committed to our employees,” says Kent Streuling, senior vice president of human resources at America First.
Andy Harbour, executive director and director of institutional consulting at Graystone Consultants and adviser to the plan, adds that this commitment is an essential part of the ethos of America First, where the participation rate is 100%. “They view themselves as a lifetime employer,” he says, noting that a substantial percentage of the company’s 4,500 auto-enrolled employees have been with the firm more than 10 years. “That is their culture. Once you come here for employment, it is a place where they want to take care of you.” It’s not the norm in today’s world, he admits. The average tenure is 22 years of service, with nearly a quarter (23%) serving 30 to 39 years. Fewer than one-quarter of the plan’s retirees (16%) worked a relatively short time, at five to 10 years of service, and 3% of retirees worked for AFCU for 20 to 29 years, according to Streuling.
Describing the adviser’s role as liaison that helps to carry out the plan sponsor’s needs, Harbour emphasizes that an important part is to understand and leverage the capabilities of what the recordkeeper can provide. “We know how to get the data and use it to make the changes the plan sponsor is trying to accomplish,” he says. Streuling agrees that the adviser plays an important part in the successful administration of the plan, adding that Harbour is an active participant at the quarterly retirement committee meetings.
While many other organizations have frozen their DB plans or gone to a cash balance or other benefit, America First is proud of offering a defined contribution (DC) plan as well as the DB plan.
America First views the pension plan as the anchor for retirement preparedness, while the 401(k) plan is an additional tool for workers to prepare. Both plans are reviewed at meetings, when committee members scour for red flags such as participants not on track with adequate assets. “The current AFCU pension plan is coordinated with the individual participant’s projected Social Security benefit to provide a very high replacement of pre-retirement earnings for career employees,” Cannon says. In combination, the two benefits provide a higher ratio of pre-retirement income for the lower-paid employees. Including Social Security benefits, the average income replacement rate ranges from 73% to 106%.
Another mark of distinction, Streuling says: The firm undertook two major tasks—a plan conversion to a new recordkeeper for the DC plan and a new technology roll-out—in the same year.
The No. 1 goal was to push down costs to employees as low as possible. “Cost was a large consideration,” Harbour says. “The other was the desire for cost transparency. I think it’s a safe statement that a group annuity platform is not the most transparent environment in a retirement plan. Where they are today is the best of both worlds: the lowest cost possible option and the solution with the most transparency for employees.”
Technology for participants was another deciding factor in the conversion, and Harbour’s input was instrumental in the decision to pursue a new recordkeeper, Streuling says. Through Milliman, the plan’s recordkeeper, participants now have access to tools that allow them to make transactions and track how prepared they are.
Robert Griffith, relationship manager/consultant at Milliman, describes the recordkeeper’s automated Plan Ahead Calculator that participants can access when they log into their account. The tool allows participants to pull in DC as well as DB plan information, as well as other investments: a Roth individual retirement plan (IRA), or a spouse’s 401(k) plan. A 15-minute process to update their information then gives participants a personalized report that lets them know whether or not they are on track for retirement, he explains. If they are not, they are given a reminder each time they log on to see their results on an “At a Glance” page. As well as the reminder, he says, they are given a figure that tells them how much they need to save.
The messaging, Griffith says, is that a participant needs to look at everything. They might be too conservative in their asset allocations at a young age, or they may need to boost their savings, and if necessary seek further guidance to get them on track. “That is the beauty of a customized report,” Griffith says. “The participant receives the information they need, which is special to their situation.”
Kent Cannon, actuary for America First, calls it gratifying to work with a plan and credit union that places the long-term personal growth and financial security of its employees on the same plane as the long-term success of the organization.
Pension plan benefits are accrued over the working lifetime of the employee, with benefits continuing to accrue even for years worked after hitting 30 years of service, notes Cannon, principal at Roy & Associates Inc., in Salt Lake City. “An employee continues to earn additional benefits for as long as they work,” he says. “AFCU is committed to sound plan design as well as accurate and timely administration of plan benefits.”
Like other financial institutions, Cannon points out, America First has a large number of shorter-service employees and a high level of turnover in the early years of employment. The pension plan benefit consequently helps to reduce turnover and retain workers for longer.
“The new Web-based projection tool allows management to provide to employees customized projections of the value of career employment with the credit union and hopefully increase employee retention,” Cannon says. As a retention tool, the plan provides two advantages: seasoned employees add to the credit union leadership in their later years with the company, which reinforces the credit union’s culture of growth from within. This, in turn, helps America First avoid the high costs and challenges of senior management turnover. —Jill Cornfield
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