TOTAL PLAN ASSETS/PARTICIPANTS: $18.3 million/175
PARTICIPATION RATE: 96.4%
AVERAGE DEFERRAL RATE: 9.9%
DEFAULT DEFERRAL RATE: 8%
DEFAULT INVESTMENT: T. Rowe Price Retirement Date Series
EMPLOYER CONTRIBUTION: 100% of 8% participant deferral
ADDITIONAL PLANS: Not applicable
“Beef—it’s what’s for dinner.”
That slogan was popularized by the National Cattlemen’s Beef Association (NCBA), which, from its home in Centennial, Colorado, serves as spokesman for the beef industry and cattlemen in all 50 states. This includes roughly 30,000 direct members, plus another 120,000 members of state affiliate associations.
When the decision was made to terminate the NCBA defined benefit (DB) plan in the mid-2000’s, the group used what would have been its defined benefit funding to restructure the match in the defined contribution (DC) plan. The formula it chose: 500% on the first 1%, and 100% on the next 3%, leading to a total employer contribution of 8% if an employee put in half of that.
Commenting on the elimination of the pension plan, Doug Evans, NCBA’s chief financial officer (CFO), says, “Anytime you take away an employee benefit, it’s hard. Moving the match to 8% was to lessen the blow—and no one left.”
It is not unusual for employees—130 active today—to work for the group for 20 years, notes Beth Harris, executive director of human resources (HR). The association has a reputation for putting its employees first, and taking steps to help those in the plan be retirement ready.
Although the enhanced match had kept employees from being upset over losing the DB plan, the association realized the match structure was a disincentive for participants, as many contributed just the bare minimum—1%. Plan participation was only around 80% and average deferrals around 3%.
According to the plan’s adviser, Walt Melcher, vice president and director of retirement plan solutions at RMB Capital Management in Denver, “With such a generous match, the savings rates were not what they should have been—the plan had inertia.
Working in collaboration with NCBA and its recordkeeper, T. Rowe Price, in 2010, we turned the challenge into an advantage by adding auto-enrollment, automatic escalation and stretch-match plan design.”
The plan match was changed to 200% on the first 4%. Automatic enrollment was added, at 4%, to an age-based target-date fund (TDF). Participant reaction was good; 90% of the affected population accepted the new plan design.
In early 2011, when the plan re-evaluated the design’s success, participation had increased to around 95%, and deferrals averaged 6%. Only three eligible employees have not joined the plan, a sticking point for the sponsor.
While a severe drought was hitting U.S. cattlemen hard in 2012, the cattlemen-supported NCBA was experiencing negative consequences from the beef industry’s economic environment. As a result, the committee decided to table any plan changes considered.
These included some it had formulated in response to a benchmarking analysis report T. Rowe Price had prepared; this was based on the firm’s proprietary Plan Meter, which measures participant replacement income.
According to Lisa McGarvey, relationship manager, assistant vice president, with T. Rowe Price Retirement Plan Services, “Instead of getting discouraged due to the delay, the plan committee continued its conversations, optimistic that the setback would be short-term. They remained resilient and determined.”
The Plan Meter report, customized for NCBA, had leveraged the group’s nondiscrimination testing data to evaluate retirement income projections. With a goal of ensuring 50% income replacement from the 401(k) plan, the association discovered that only a small percentage of participants saved at an appropriate level. The median replacement income was 22%, without Social Security.
In mid-2014, a revised retirement readiness report was run; it indicated the need to raise the threshold for auto-enrollment and to implement auto-escalation. As a result, in 2015, auto-enrollment changed from 4% to 6%, and participants contributing less than 6% were re-enrolled at that amount. For participants to receive the full 8% match, they had to defer 6%. Auto-escalation was added, up to a 16% cap.
These changes were enacted incrementally over two years. NCBA felt that small steps would be more aligned with behavioral finance beliefs and that the changes would be well-received by the majority of its employees. The changes also were implemented to coincide with annual raises, in order to minimize the impact on the participants’ take-home pay.
To complete maximizing the stretch match, this year, auto-enrollment was increased from 6% to 8%, and the 8% match is being applied to that 8% contribution rate.
As part of the employee rollout, the association held a meeting to announce the changes and give participants a chance to ask questions. Says Evans, “It was very important to us that participants understood what was changing and their options. The results of this change in the match formula have been very positive. The majority of all employees who were deferring at the 4% level moved to the 6% level in 2015 and then to the 8% level this year.”
According to McGarvey, “Using 2015 data, we now show a median replacement income in the plan of 36%. When we include Social Security in the process, the current median retirement income projection is at 69%.”
Melcher credits the collaboration among the stakeholders for the continuing success of the plan. “We leveraged each others’ capabilities in order to move the needle. Plus, it’s the tone at the top of the association that penetrates everything they do—they genuinely care. It’s the culture of the whole organization.”
Evans and Kendal Frazier, NCBA’s interim CEO, acted as messengers to convey the importance of fully participating in the plan. They were willing to explain the process and to champion it to employees, hoping to see all participate, McGarvey says. Leadership worked to explain the plan to nonparticipating employees and spoke with them several times about the plan.
“We were initially hesitant to make the most recent changes to our match formula,” Evans says, “but we were pleasantly surprised to find that most employees recognized that we were trying to help them better prepare for retirement and that they still had control over their savings rates. Some older participants said they wished we’d implemented the changes sooner, as it would have helped them save more and be better prepared.”
NCBA has gone from a plan with a match and provisions that incentivized poor participant behavior to a robust plan with healthy participation and deferral rates that are projected to provide its employees with positive retirement scenarios.
“Just six years ago, we had a majority of our employees deferring 1% percent,” Evans observes. “It amazed me how many of them have just been willing to continue to do what they needed to for their own retirement. As we moved to 4[%], they moved to 4[%]; when we moved to 6, they moved to 6; and [since we’ve] recently moved to 8, all but nine are at 8 or more.” —Judy Faust Hartnett
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