HEADQUARTERS: Boston, Massachusetts
TOTAL PLAN ASSETS/PARTICIPANTS: $6 billion/55,000
PARTICIPATION RATE: 94%
AVERAGE DEFERRAL RATE: 7.8%
DEFAULT DEFERRAL RATE: 6%
DEFAULT INVESTMENT: Custom target-date funds
MATCH: 3% plus additional 3% discretionary,
based on financial performance
ADDITIONAL PLAN: Cash balance
In 2014, despite 93% participation in its 401(k) plan, as well as an average deferral rate of 7.8%, Liberty Mutual Insurance saw room for improvement. The insurer wanted to have more than just a competitive plan—a first-rate plan. To accomplish this, it decided to do a plan re-enrollment in July 2015, focusing chiefly on its investment offerings.
“One of the wonderful things about working with Liberty is it is very thorough,” says Maureen Shea, partner and sales executive at Aon Hewitt in Waltham, Massachusetts.
One of the tools Liberty uses is the Aon Hewitt Benefits Index, by which sponsors can benchmark themselves against their peers. Additionally, Aon Hewitt offers a 401(k) report, which lets clients compare their savings data with Aon’s total book of business, says Steve Doucette, a partner with the insurer’s retirement and investment practice. “We also present them with a report about hot trends in retirement every year,” he says.
Liberty Mutual is forward-thinking, Doucette says. “[It] likes to look at trends in the marketplace. While it might not jump in right away, when it sees the trends moving to the majority, it wants to understand if they make sense for its own plan.”
This approach also contributed to Liberty’s decision to take its ongoing benchmarking a step further, to ensure it offered “a best-in-class retirement program”—one measured not just against standard yardsticks but by “our own standards,” says Charles Claudio, assistant vice president and director of retirement programs at Liberty Mutual.
The insurer wanted its retirement plan to be “truly reflective of our values and to help us attract top talent in a competitive benefits environment. In essence, to make a great plan even better,” Claudio says. “Obstacles to achieving this goal included a complex investment menu, high inertia, suboptimal tax efficiency and employer and employee contribution levels that, though better than average, could have been taken higher.”
Adds Thomas Oksanen, vice president and manager of Liberty Mutual corporate benefits, “The competitive benchmarks we see are helpful guideposts, but we wanted to set the bar even higher.”
To accomplish this, the insurer decided to pare down its investment lineup from 20 to 10 offerings and to give participants an opportunity to reallocate their portfolios to the right asset mix from the new investment menu, Claudio says. The insurer also decided to move to white-label funds focused on asset allocation, rather than offering name brands, to help participants make an unbiased, and maybe more appropriate, choice. The funds were positioned for participants on a continuum of investment support, from “Do it for me” to “Do it myself.”
It is important to note that, prior to the investment re-enrollment, the plan was already invested in low-cost institutional investment products, Claudio says. When paring down its lineup, Liberty achieved an additional 24% decrease in the plan’s weighted average investment expense, accomplished in large part through fee negotiations and putting its index funds out to bid, he says.
To educate plan participants about the changes, Liberty created a website, libertybenefitsguide.com, and conducted in-person seminars, augmented with videos and webinars, at its offices throughout the country, he says. It used the same website to publicize changes to its health and wellness programs.
The multimedia campaign—website, webinars, videos and seminars—required “a significant investment in time and resources” but established tools that Liberty Mutual will continue to offer its participants, Oksanen says.
“We think these are differentiators,” Claudio says. “We think having a website that is available to participants and their key decisionmakers, such as a spouse or adviser, is a good thing. Webinars and seminars are a good way to engage employees—as well as to see their reaction to changes and get their feedback.”
In a sense, the in-person seminars also served as a kind of focus group, Oksanen says. “We learned a lot about participants in those events, by seeing their reaction to the changes and hearing their thoughts, live.”
Active Election Followed by Re-enrollment
Following the plan’s repositioning last June, nearly one-third of participants—31%—made an active election. If they did not make such a selection, Liberty Mutual reallocated them automatically into one its qualified default investment alternative (QDIA), custom, age-appropriate target-date portfolios, Claudio says. Liberty determines the portfolios’ glide paths, by working with its investment consultant, Rocaton Associates.
Liberty had been automatically enrolling participants since 1999 and, in 2009, introduced customized target-date portfolios as the QDIA. Still, because the insurer had never re-enrolled participants, balances in those portfolios were low, Claudio says.
“Prior to the 2015 change, 48% of participants had a balance in a target-date portfolio, and, of those, 50% had 100% of their assets in that option,” he says. “On July 2, 2015, 85% had a balance in a target-date portfolio, and, of those, 100% had 100% of their assets in that fund.” Overall, this resulted in a 350% increase in target-date holdings. In addition, there was a 12% increase in the number of participants using managed account services from Liberty Mutual’s provider, Financial Engines.
A move to lower-cost, passive funds was also significant, Claudio says. “Another key metric that really grabbed our attention was that, prior to re-enrollment, people used actively managed funds as much as passive funds, but, during the re-enrollment process, those who had active selections chose index funds three to one to actively managed funds. We thought that was a key finding.”
A further change the insurer made was to enroll participants into its defined contribution (DC) plan immediately at a 6% deferral rate, so they could take advantage of the potential 6% 401(k) match. This allowed participants to receive the full guaranteed company match of 3% and provided an opportunity to gain an additional discretionary match of up to 3%, tied to Liberty’s financial performance.
Besides this potential 12% plan contribution, Liberty automatically and immediately enrolled employees into its active cash balance pension plan, which featured pay credits equal to 4.5% of eligible salary and full vesting after three years of service. All in, this represented up to 16.5% potential salary deferrals a year.
The second phase of the plan’s reboot took place in January and includes a Roth 401(k) feature, which can help maximize tax efficiency for participants, and a contribution “spillover” feature that lets them keep saving at the maximum permitted by the Internal Revenue Service (IRS) while fully exploiting the employer match opportunity. Another planned change is to modify loan provision rules to mitigate leakage and decrease the number of potential loan defaults.
Going forward, Claudio says, “the highest priority over the next 12 to 18 months will be to focus on analyzing plan usage among different employee groups and to use this data to target specific groups for communications around savings and investment.” Liberty Mutual is considering in-plan conversions to Roth, separate investment elections across money sources—Roth, before tax and traditional after tax—a self-directed brokerage window and retirement income solutions.
The important thing to note, Claudio says, is that this is not “a one-and-done” solution. “We will continue to look at our plan next year and in 2018, 2019 and 2020. If we find we need to fine-tune things, we will do it.”
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