TOTAL PLAN ASSETS/PARTICIPANTS: $434.5 million/5,155 for the 401(k); $103.8 million/1,778 for the 457
PARTICIPATION RATE: 100% for the mandatory 401(k); 34.5% for the 457
AVERAGE DEFERRAL RATE: 6% for the 401(k); 4.6% for the 457
EMPLOYER CONTRIBUTION: 8% for the 401(k), plus 50% on 4% for the 457
When you look at retirement plan statistics nationally, many employers match something like 50% on the dollar, up to 6%,” says Don May, a member of the Fulton County, Defined Contribution (DC) Plan Administrative Committee. “Here at Fulton County, [Georgia,] we have a mandatory 401(k) plan and a voluntary 457(b) plan.” The county previously froze its defined benefit (DB) plan, he notes.
For the 401(k), Fulton County contributes 8%, and the employee is required to contribute 6%. “So you get 14% retirement savings just for being an employee here: That’s on autopilot,” says May, systems analyst III for Fulton County. Additionally, if an employee contributes to the 457, the county matches 50% up to 4% of his contribution.”
“I’ve had a lot of people tell me, ‘Man, that’s unheard of,” he says, of his co-workers. “They say, ‘I’ve never worked for an employer that has provided that type of contribution.’”
Between the 401(k) and the 457(b), an employee deferring 10% benefits from a 20% total contribution, as the employer also contributes 10%. The high contribution rates have played a big role in 95% of Fulton County employees being on track to replace 75% or more of their income in retirement.
A Focus on Individualized Education
Fulton County puts considerable emphasis on individualized employee education, and its recordkeeper, MassMutual Financial Group, has a retirement education specialist on-site full time at the county government’s headquarters building, in Atlanta. Fulton County and MassMutual take several steps to actively encourage employees to talk with a MassMutual education specialist, either in person or by phone, including urging county managers to take responsibility for ensuring that their employees make an appointment with the provider.
From the plan committee’s perspective, the value of the one-on-one conversations with MassMutual is they “keep the employees up to speed on our retirement plans, to make sure they are aware of where they are with regard to their retirement savings, and to help keep them on track,” says Kisha Johnson, a committee member and Fulton County investment officer.
The on-site MassMutual specialist, Angela Hobbs, spends about half of her time at Fulton County’s headquarters and the other half traveling to the county’s over 40 locations. When she is on the road, headquarters employees can speak with her by phone or make an appointment to see her when she returns. Besides meeting individually with participants and talking with them by phone, she speaks about the retirement plans at new-hire orientations several times a month and conducts quarterly group meetings focused on understanding plan basics and on pre-retirement planning. “I say to employees, ‘Let me explain why this is such a good deal for you. Let me explain how these plans will help provide not just for you but for your family,’” she says.
Hobbs had 461 one-on-one meetings with Fulton County employees last year, up 15.8% from 398 in 2015. Also taking participants’ phone meetings with MassMutual call center education specialists into account, participants had 9,362 one-on-one conversations with MassMutual last year, up 29.6% from 7,226 in 2015.
A Revealing Scatter Diagram
Fulton County does have some challenges with its participants, though. Last year, American Century Investments did a plan-health report for the committee—Fulton County uses a mid-cap fund on its investment menu—and it included a scatter diagram plotting how participants’ equity allocations by age match up to that asset manager’s equity allocations in its target-date fund (TDF) glide path. That gave the committee a better sense of how appropriately allocated participants were for their age.
“We saw some things that we need to address,” May says. “Our participants are all over the place with their allocations.” For example, many long-tenured employees have never readjusted their investment allocations as they’ve aged. “Then, we have other older employees who, because of the market downturn in 2008 and 2009, are trying to make up for it now” by investing too aggressively for their age, he says. “They’re saying, ‘Let’s shoot for the fences.’”
The report’s findings came as the Fulton County committee increasingly has grown aware of behavioral economics and how those dynamics influence participants, May says, and he points to three main issues the committee sees. “One is that many participants suffer from myopia: They can focus only on what’s in front of them, instead of thinking about the long term,” he says. “The second is that they are subject to ‘loss aversion’ and tend to sell investments in a declining market. And third, they suffer from inertia: Many employees who enrolled years ago have not moved from their original investment allocation.”
The American Century Investments plan-health report “was very eye-opening for us as a committee,” May says. “One of the things we’ve been discussing is to re-enroll everyone in Vanguard target-date funds, and we are going to consider that this year. And, in terms of inertia and myopia, re-enrollment would help get people on the right path with their investments.”
Utilizing Behavioral Economics
MassMutual also has helped educate the committee about behavioral economics, and that has gotten committee members interested in incorporating more of these insights into its participant communications. May mentions a few changes the committee intends to work on this year, to address participants’ behavioral hurdles.
For example, the committee wants to look at redesigning participants’ quarterly statements. “The goal is to display long-term performance on the statements before showing quarterly performance,” May says. “This will help prevent participants from making bad investment decisions, based on short-term volatility or negative news.”
The committee also aims to be more mindful of how it displays its investment options to participants. “Behaviorally, people tend to choose what appears first on a list,” May observes. “We plan to use this tendency to redesign the order in which funds appear for selection on the website. The goal is to lead with the target-date funds and push the more aggressive choices toward the bottom of the list.”
Sometimes in participant meetings, the plan will use software that May calls an “age tool.” As he says, “This is designed for the one-on-one meetings with younger participants. “The goal is to overcome myopia by getting young participants in touch with their older selves—in other words, to make retirement appear more real to the participant at an early age.” —Judy Ward
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