PARTICIPATION RATE: 95.6%
AVERAGE DEFERRAL RATE: 7.4%
DEFAULT DEFERRAL RATE: 6%
DEFAULT INVESTMENT: Target Date Funds
AUTOMATIC ENROLLMENT: Yes
AUTOMATIC ESCALATION: Yes
EMPLOYER CONTRIBUTION: 50% on 6%, plus 3% contribution
Negwer Materials, Inc., is a family-operated building supply company in St. Louis, offering architectural design/consulting and other services, in addition to construction materials and hardware.
“Our unique challenge is understanding the wants, needs and expectations of our diverse team member population,” says Scott Negwer, president of the firm. “Creating a good match formula and educating our team members on the importance of saving for retirement is key to the plan’s success.”
In 1983, the company instituted a defined benefit (DB) plan and, in 2014, added a 401(k) plan. Why open the latter? “We were looking at our company expansion, and looking to attract and retain employees. Everyone wants a 401(k),” Negwer observes. “Those were the driving pieces. But in addition, were the variability and liability associated with the defined benefit plan, and a real lack of understanding by our employees of what the value of a DB plan is.”
The DB plan was fully frozen in 2017, and the 401(k) has become a success. With 159 eligible employees and 152 deferring, the company has a 95.6% participation rate, a 7.4% average deferral rate and a generous match. After 30 days of employment, workers are automatically enrolled in the plan with a default deferral of 6%. The matching formula is 50% of the first 6% of a team member’s deferral, and each participant receives a safe harbor matching contribution of 3%—i.e., 12% of compensation if he defers 6%. The company picks up all plan fee costs. To encourage long-term savings, the plan does not allow loans.
“We find these design features valuable to the participants. One hundred percent of their contributions are at work for them” says Dee Barnard, vice president of finance at Negwer.
Negwer Materials provides immediate 100% vesting for participants, re-enrolls them to 6% annually if they have deferred less than 6%, and automatically escalates their contribution 1% annually until 10% is reached.
Negwer and Barnard have made education on, and promotion of, the 401(k) a key part of the company culture. Negwer says, “We want to educate our team members on how to save for retirement, on what their individual needs will be in retirement, and encourage everyone to be actively involved in planning for their retirement.”
The company provides retirement planning assistance across several platforms. Negwer, himself, has an open door policy for one-on-one meetings with team members, plus Principal Financial Group, the plan’s provider, offers a custom 401(k) website and 800-number call center and holds mandatory participant educational meetings. “It’s not just a one-and-done; it’s a continuing mantra that the 401(k) is all about employees’ retirement,” Negwer says.
Thanks to these efforts, 38% of plan participants are on track to replace at least 70% of pre-retirement income at retirement, and 48% to replace 50% to 69%.
In the future, Negwer Materials plans to augment its match, moving from 50% of the first 6% deferral to 50% of the first 8%. It’s all part of the company’s continuing initiative: to achieve a 100% participation rate with an average savings of 12%. —Amanda Umpierrez