TOTAL PLAN ASSETS/PARTICIPANTS: $31 million/248
PARTICIPATION RATE: 100%
AVERAGE DEFERRAL RATE: 8.13%
DEFAULT DEFERRAL RATE: 5%
EMPLOYER CONTRIBUTION: 11% for 5%
Mercersburg Academy 401(k) plan design and participant results are impressive. A 5% participation deferral is all it takes for an 11% employer match. Largely due to this, the decade-old plan, held by a coed prep school in Mercersburg, Pennsylvania, succeeds with a 100% participation rate, and 99% of participants making total annual contributions of over 15%.
There is just one problem. Not many participants are willing to contribute over that standard 5%, given the high employer match.
“Because we have such a healthy employer match, it tends to make participants less inclined to increase their 5% deferral,” says Danielle Nordyke, director of human resources (HR) at Mercersburg.
However, this January, Mercersburg converted to a collection of OMNI solutions—more specifically OMNIPay—a recordkeeping platform with low-cost fund options by Sungard, and recordkeeper T. Rowe Price. The decision to switch was made in order to provide low-fee funds to participants not enrolled in a target-date fund (TDF). While only 20% of participants do not utilize TDFs, Joseph Huber, an investment committee member at Mercersburg, notes how essential it is to provide both affordable and quality investment options for employees.
“Even though 80% of participants in the plan are in TDFs, there are still 20% in other funds; we want to make sure those other funds are both good and low cost,” he says. “With the OMNI platform, we have a much larger selection to pick from.”
The change has not only met participants with quality fund options but advanced technological services. Employees have the ability to apply online capabilities to retirement planning. One includes FuturePath, a personal confidence-planning tool that delivers predictions of future retirement income based on variables such as current salary; contributions; Social Security and pension accrued; and estimated future income needs.
Nordyke says that while the conversion is just commencing, participants have met the hands-on education with increased awareness and attention—and many are eager to learn more.
“You can learn how to get an education, how to run reports for yourself, how to use the FuturePath model,” she says. “I’m already surprised at the number of people who have come to me and said, ‘What else can I do?’”
Nordyke anticipates utilizing additional services to hopefully raise participant contributions and deferral rates. This includes scheduling education sessions, with the option of connecting with an education counselor or adviser, and attaining a 10% deferral rate for all participants. To do so, Nordyke anticipates increasing the deferral to 6% to receive the 11% match.
“I think that’s kind of industry best practice,” says Nordyke. “And we certainly want to put that as a goal if we can.” —Amanda Umpierrez
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