PARTICIPATION RATE: 95%
AVERAGE DEFERRAL RATE: 11%
DEFAULT DEFERRAL RATE: 6%
DEFAULT INVESTMENT: Vanguard Target Retirement Funds
AUTOMATIC ENROLLMENT: Yes
AUTOMATIC ESCALATION: Yes
EMPLOYER CONTRIBUTION: 3.5% nonelective contribution
Survice Engineering Company did two 401(k) re-enrollments last year, after the plan committee hashed out its philosophy of walking the line between helping employees prepare for retirement and getting overly paternalistic.
“I’m a big believer in personal responsibility and self-reliance, so I admittedly had a harder time getting past the ‘big brother’ concern,” says Kris Keller, president of the Belcamp, Maryland, company, whose diverse engineering projects range from working with the U.S. Department of Defense on combat weapon-system survivability to supporting commercial clients on hydroelectric energy-generation efficiency.
“And, we rationalized, with the flexibility built in for those who wanted to opt out of re-enrollment, we weren’t forcing them into anything but, rather, were giving them perhaps the nudge they needed,” he says.
Survice already had tried a “soft” communication approach with employees “to see if we could gently encourage them to defer more and invest properly,” says Human Resources (HR) Manager Jennifer Gross. The firm promoted Fidelity tools, and Greenspring Advisors spoke at a companywide employee meeting about real case studies demonstrating the impact of deferring at different levels and times. “Despite these more conventional efforts, we weren’t satisfied with the outcomes,” she says. “So we decided it was time to take the plunge and implement the more aggressive re-enrollments.”
All employees get automatically enrolled, because Survice contributes 3.5% of their base earnings regardless of whether they make a deferral—which could tempt employees to save nothing moreGross says. Last January, employees who had chosen a 0% deferral got re-enrolled at the plan’s 6% default deferral; they were also enrolled for the1% automatic escalation, which has a 10% ceiling. “We had 28 employees affected by the re-enrollment ‘sweep’ in January 2017,” she says. “Of those 28, 13 were successfully re-enrolled, with 10 defaulting at 6% and three electing a lesser amount. But all 13 remained in the 1% auto-increase program.” Fifteen employees affirmatively opted out of the re-enrollment.
Last July, the plan performed an investment-focused re-enrollment, for those participants not already invested in a model portfolio or not already 100% invested in a target-date fund (TDF). Of those 118 affected participants, 63 (53.4%) got reallocated 100% into the age-appropriate Vanguard target-date fund, while three participants made new affirmative fund elections and 52 opted out of the reallocation. “So, at the conclusion of this sweep, we had 76.3% of our non-terminated participants invested properly, compared with 59.4% prior to the sweep,” Gross says.
Survice had a reason for doing the two re-enrollments separately. “We recognized that the fund re-enrollment was a more aggressive approach, so we wanted to take extra care to educate employees on what was going to happen,” Gross says. “First and foremost, we wanted to assure them that they could opt out of the re-enrollment altogether. We wanted to make sure they knew they were still in control of their savings.” —Judy Ward