HEADQUARTERS: Glendale Heights, Illinois
TOTAL PLAN ASSETS/PARTICIPANTS: $25.1 million/440
PARTICIPATION RATE: 96.3%
AVERAGE DEFERRAL RATE: 8%
DEFAULT DEFERRAL RATE: 6%
DEFAULT INVESTMENT: BlackRock LifePath Index Funds
EMPLOYER CONTRIBUTION: 100 % on 6%
ADDITIONAL RETIREMENT PLAN: Not applicable
OSG USA, Inc. started prioritizing retirement readiness years before it became a hot idea in corporate America.
“We didn’t even know what focusing on ‘retirement readiness’ meant, and we were practicing it,” recalls Jeff Tennant, executive vice president and chief financial officer (CFO) of the Glendale Heights, Illinois, manufacturer of high-tech cutting tools. Over the years, he says, he and his executive colleagues sometimes wondered whether they did the right thing by offering 401(k) benefits more generous than those of other area manufacturers that competed for the same employee pool.
“We always second-guessed ourselves. But we have realized that, ‘Yeah, we actually are doing the right thing.’”
The $25.1 million plan defines its retirement-readiness goal for its 440 participants as replacing at least 75% of their pre-retirement income.
The plan for many years has provided a dollar-for-dollar 6% company match, which Tennant says is very unusual among peer manufacturers. OSG USA also automatically enrolls new employees at 6%, and annually re-enrolls any employee not participating or who contributes less than 6%.
The philosophy on prioritizing retirement readiness traces back to OSG USA’s parent company, OSG Corp., of Toyokawa, Japan, and the resulting blend of Japanese and American cultures, Tennant says. The employer takes the Japanese view “that the company is there to protect employees,” he says. In return, long-term employees bring valuable knowledge about both the company’s customers and its manufacturing processes to their work.
“We actually have a lot of lifers and old-timers at the company,” Tennant says. “People still look at working here as a career—someplace where people retire.”
The 401(k) plan started the 6% match in 2001, Tennant says, when OSG USA consolidated the plans of a couple of companies it had acquired into its 401(k) plan. At that point, the OSG USA plan had a 3% match plus a 2% profit-sharing contribution. Moving to a dollar-for-dollar 6% match motivated many employees to start deferring more to improve their retirement readiness, he says. “It pushed the people who were doing only a 3% deferral, and relying on a 2% profit-sharing contribution, to contribute 6%,” he says. “That really helped a lot of people, especially the employees in our factory, who may not have been looking at that. That was kind of a game-changer for us.”
Since 2008, the plan has automatically enrolled employees at a 6% initial deferral, so participants can maximize the match. “This company has been very forward-thinking about plan design,” Corporate Human Resources (HR) Manager Jennie Stephens says.
“For us, it is very much about thinking, ‘How can we simplify that process for employees?’ The more we can automate, the more we can help them reach their goal.”
And 90% of the time, auto-enrolled OSG USA participants do not change their initial deferral rate, says Kelly Turk, compensation and benefits specialist. “For us, what makes it easy is that we have a match of 6%,” she says. “We tell our employees, ‘If you’re contributing less than 6%, then you’re missing out on free money from OSG.’ We can say, ‘We are in it with you—you be in it with us. We are both contributing 6% to your account.’ We are not putting it fully on them.”
The re-enrollment of all eligible employees at 6%, whether they participate or not, started in 2015, when the company also added a 1% annual increase. Most employees stick with it, Stephens says. “Some people, as with any re-enrollment, feel uncomfortable with the 6% deferral,” she says. “But we have found that even if they move the deferral back, usually they do not decrease it to zero. They move it to a 3% or 4% deferral.” The automatic-increase program has a 50% ceiling.
Turk gets some employee pushback about re-enrollment, but has found an effective way to respond. “What I always tell people is, ‘Try it for a few weeks, and see if it is OK. You can always change it.’” Particularly since the money gets withheld on a pre-tax basis, she adds, many employees find the contribution impacts their paycheck less than they had feared and stay with the 6% deferral.
With participants in line to replace an average 68% of their pre-retirement income, the sponsor now hopes to see outcomes improve even more. “Getting people to an 80% income-replacement ratio is likely going to be one of our future goals,” Stephens says. Currently, employees defer an average of 8% and, including the match, get an average total contribution of 13.5%. “We will be raising our total contribution goal to 16% this year,” she says. “Right now, with automatic increases, we are looking at getting everyone close to a 10% deferral, plus the 6% match. We think we can increase the goal because of the design features we have incorporated into our plan.”
With its January 2015 move to Empower Retirement as the plan’s recordkeeper, OSG USA got both improved plan-level reporting about participants’ retirement readiness and better tools for them to use, Stephens says.
As people log on to the plan website, they immediately find their retirement-readiness analysis displayed. “It’s the first thing they see,” Turk says. “It tells them, ‘Based on what you are doing now, this is how close you will be to being ready.’ And for those not in line to replace at least 75% of their income, she says, “it shows them, ‘Here is what you can do to get closer to reaching the goal.’”
The Empower interface makes it simpler for participants to take action than with the plan’s prior recordkeeper, Stephens says. “It is much more intuitive and streamlined,” she says. “With our previous recordkeeper, it was not as visual, and participants had to go into separate areas of the website to do the calculation.”
The improved plan-level reporting on retirement readiness also has allowed OSG USA to think about targeting customized communication to employees who are falling short of the 75% goal, Stephens says. And, in the next year, the sponsor hopes to work with its adviser, Wintrust Wealth Management, to complete individual education meetings with nonparticipants and participants deferring less than 6%.
As of now, fewer than 30 OSG employees are not enrolled or participate at less than 6%, Turk says.
“We are going to pinpoint who is not contributing the 6%, then we’re going to work with our adviser to reach out to them,” Turk says. Taking a very small step may not go far enough to get these employees on track for retirement, she says. “Maybe starting by contributing 1% a year will not get them there. So the discussion of what they need to do will take more time and effort.” —Judy Ward
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