SURVEY SAYS: How Are You Boosting Participation?
It is a plan dynamic that creates challenges when it is too low (passing those non-discrimination tests), and sometimes when it is too high (funding the accompanying match). However, widespread dissatisfaction with the general rate of participation in such programs led to the inclusion of an automatic enrollment safe harbor in last year’s Pension Protection Act.
This week, I asked readers what, if anything, they had done in the past year to improve/enhance your plan’s participation rate?
Perhaps not surprisingly despite all the recent attention to the topic, the most common response to this week’s survey was adopting automatic enrollment – a step taken by a full third of this week’s respondents. A close second – 29.6% had added lifecycle/lifestyle funds, while roughly a quarter had targeted participation messages, and one-in-five had simplified the enrollment process (more than one response was permitted per option, remember).
Other options taken:
- 16.7% – expanded fund menu (ironically, about half that number had chosen to shrink the fund menu)
- 14.8% – increased/modified the company match
- 14.8% – increased frequency of company meetings
- 11.1% – accelerated eligibility standards
- 7.4% – made employee/enrollment meeting mandatory
- 5.6% – made workers return enrollment forms
- 3.7% – added profit-sharing
- 1.9% – haven’t done anything yet – but need to
Meanwhile, nearly one-in-ten said they hadn’t done anything – because they were happy with their current participation rate.
Among the “other” options taken: calling/emailing all employees, hiring an investment adviser – and changing the plan provider.
However, as one reader cautioned, “We can’t expect the dynamics of a plan to work miracles. That why I think it’s very important for an employer to sometimes step outside of the plan to see why it is an employee is not receiving the message. Is it because of high debt and they don’t have the extra cash? Is it because the information they are receiving is too technical? Is it because they think they’re too young? Are they putting kids through college?”
There were plenty of helpful suggestions in this week's responses, including:
"We hold quarterly enrollment meetings for which attendance is mandatory. I don't let them leave the meeting unless they have turned in the enrollment form and beneficiary designation. For the last three years, we have also required that they activate their online account and choose their investment line-up as part of the meeting. So not only is automatic enrollment a moot issue, so is designating a default fund (although we do have one). Our participation rate runs between 80% and 85%, with an average deferral rate of 4.2%."
"Three years ago we began automatic enrollment. Participation went from 76% to 94%. Then a month ago we began auto increase in deferral rate (so people not contributing went from -0- to 1% unless they opted out.) Participation rose to 99%!"
"About 2 years ago we changed to immediate enrollment at date of hire (participation now 85.91%). Require employee to sign off on contribution election percentage and fund election even though plan allows for automatic enrollment (reduces possible future legal & regulatory surprises). Also have employee sign off if membership declined."
"I started sending letters out this year with projections on what their contribution and matching (that they didn't make/receive) could have been worth at retirement. It certainly worked for some, but it still required participants to get their mail, open the envelope, read the letter and then increase their savings."
"We had already adopted many of the above items so we've done nothing this year. Participation increased "some" but not enough. Just as much of a problem is that those who do participate can't wait to take out loan(s) - a BIG problem of these plans. Some "brain" before me changed hardship loans to 3 at a time for any reason so we have a large number of people that keep 3 going constantly. And no amount of education gets through to them. (Sorry - I digress.)"
"We targeted the new employees who seem to appreciate a 401(k) plan already and are signing up for 10%-30%. I guess we're hiring an intelligent bunch. We need to target the current employee population, some of whom think 5% profit sharing per year will provide the life to which they've become accustomed."
"We switched from a 3% safe-harbor to a 100% on the first 4% match safe-harbor. That way employees need to contribute their own money to get any of the employer's "free" money."
"The simplified enrollment process we used was to run an easy to apply enrollment campaign whereby the prospective participant receives a post card that they can check a box to enroll and then check a box for a given level of enrollment."
"The COO wants to institute automatic enrollment. I think this is an unnecessary action as our participation rate is at nearly 98%! It would really be nice if the powers that make the decisions would accelerate the eligibility standards and make enrollment more timely. At the present their are only two enrollment periods per year; therefore, some employees have had to wait nearly a year and a half to participate in the plan. That is not an attractive incentive when you are trying to hire folks."
The Road(s) Not Yet Taken
As for the road(s) not yet taken - automatic enrollment also topped the charts here - more than a quarter of this week's respondents said they wanted to try but hadn't. That was well ahead of the 12% that were eyeing increasing/changing the company match, the 10% who were considering adding lifestyle/lifecycle funds, or the 9.5% who had given thought to targeting employee messages. Roughly 7% each had considered simplifying the enrollment process, making enrollment meetings mandatory, or increasing the frequency of those meetings, while about 5% had given some thought to accelerating the eligibility, and half that number had considered making workers return enrollment forms and expanding the fund menu. Roughly one-in-eight had already done everything they wanted to do, however.
But this week's Editor's Choice goes to the reader who cautioned that "This is from my perspective; not the company's", but said "I would like an increased match or a winning lottery ticket."
Thanks to everyone who participated in our survey!
| 1. | As the manager of a company that does nothing but enrollment meetings, I have found that most employees still don't understand 401(k). Many companies have moved beyond the "this is a 401(k) plan" meeting and now speak about lifestyle funds, diversification, rebalancing, the website, etc. But this will not increase participation - true understanding of the plan is the only way to success by that measurement. |
| 2. | We weren't able to implement anything last year but so far this year we have done easy enrollment mailers and added an enrollment box to the benefits enrollment form. We also started a competition between our HR locations to encourage their help in enrolling existing employees. Come July 1, 2007, we will be changing our fund line up, implementing auto enrollment for all new hires, and offering new account management tools on our website. |
| 3. | We hold quarterly enrollment meetings for which attendance is mandatory. I don't let them leave the meeting unless they have turned in the enrollment form and beneficiary designation. For the last three years, we have also required that they activate their online account and choose their investment line-up as part of the meeting. So not only is automatic enrollment moot issue, so is designating a default fund (although we do have one). Our participation rate runs between 80% and 85%, with an average deferral rate of 4.2%. Getting them enrolled is not the problem; getting them to increase their deferral once in awhile is our challenge! |
| 4. | We changed our default investment fund to a lifestyle versus a money market |
| 5. | As an advisor, this is pretty much my agenda with every employer |
| 6. | And now our participation rate approaches 98%! |
| 7. | I work for a financial services company, so we alerady have high participation (91%,) however, we are always looking for ways to increase that. Why ees leave money on the table (100% on 4% match) by not enrolling is beyond me! |
| 8. | Three years ago we began automatic enrollment. Participation went from 76% to 94%. Then a month ago we began auto increase in deferral rate (so people not contributing went from -0- to 1% unless they opted out.) Participation rose to 99%! We have also expanded education including required one on one meetings with financial advisors (provided by our record keeper.) |
| 9. | I started sending letters out this year with projections on what their contribution and matching (that they didn't make/receive) could have been worth at retirement. It certainly worked for some, but it still required participants to get their mail, open the envelope, read the letter and then increase their savings. |
| 10. | About 2 years ago we changed to immediate enrollment at date of hire (participation now 85.91%). Require employee to sign off on contribution election percentage and fund election even though plan allows for automatic enrollment (reduces possible future legal & regulatory surprises). Also have employee sign off if membership declined. |
| 11. | Changed default fund from the Stable Value Fund to the Conservative Asset Allocation Fund |
| 12. | Other than foreign workers, we have total participation, obtained through good education and a generous company match. |
| 13. | We currently have about a 93% participation rate, so our education and communication strategies have focused on diversity and allocation strategies for participants instead of increasing the level of participation. We also offered a special program to encourage employees to increase their deferral percent, trying to overcome the inertia that seems to set in once participants begin deferring. Both have been successful and we'll continue these efforts. |
| 14. | We have not had much education in the last year or 2 and we need to improve that. Our provider has been difficult to work with to provide quality education (and it is a big provider). We are now working to improve that and hopefully will see results including a higher participation rate and higher deferral percentages. |
| 15. | We had already adopted many of the above items so we've done nothing this year. Participation increased "some" but not enough. Just as much of a problem is that those who do participate can't wait to take out loan(s) - a BIG problem of these plans. Some "brain" before me changed hardship loans to 3 at a time for any reason so we have a large number of people that keep 3 going constantly. And no amount of education gets through to them. (Sorry - I digress.) |
| 16. | We targeted the new employees who seem to appreciate a 401(k) plan already and are signing up for 10%-30%. I guess we're hiring an intelligent bunch. We need to target the current employee population, some of whom think 5% profit sharing per year will provide the life to which they've become accustomed. |
| 17. | We switched from a 3% safe-harbor to a 100% on the first 4% match safe-harbor. That way employees need to contribute their own money to get any of the employer's "free" money. |
| 18. | The simplified enrollment process we used was to run an easy to apply enrollment campaign whereby the prospective participant receives a post card that they can check a box to enroll and then check a box for a given level of enrollment. We already have auto enrollment for non-union members but do not have that for union employees. The union plan has especially low levels of participation. |
| 19. | The COO wants to institute automatic enrollment. I think this is an unnecessary action as our participation rate is at nearly 98%! It would really be nice if the powers that make the decisions would accelerate the eligibility standards and make enrollment more timely. At the present their are only two enrollment periods per year; therefore, some employees have had to wait nearly a year and a half to participate in the plan. That is not an attractive incentive when you are trying to hire folks. |
| 20. | Our participation rate is 86% without auto enrollment. We'll probably still implement this feature within the next year. We are implementing auto escalation this year. |
We implemented Automatic Enrollment, targeted participation communications, better match, excelerated vesting and automatic step increases annually to 6% contribution.
Our enrollment went from 69% to 91% over the course of 6 months!!!
I am very enthused about our 401k plan. It is the employee benefit I appreciate the most. I hate to admit that I pattern my recruitment approach after a Pit Bull. I keep after our employees until they succumb. We have a participation percentage rate of over 90%. We always pass our tests.
Our 401(K) participation rate is 88%, but we did adopt (a) automatic enrollment for new employees because new employees do not qualify for the pension plan. And, (7) increased the match for the automatic enrollees. (We also offer a pension plan opt out for the employees who have the benefit of both the pension and 401(k) plans.)
In my 3 years here, we have done 1-3, 5, 6 and 8. Since we did not automatically enroll existing non-participants, the impact of that initiative has been slow, but is showing positive results. Our NDT test results have improved over time as our participation rate has grown. What has been done is not a "silver bullet", but it is having the desired impact.
I have always taken exception to the concern that a participation rate can be "too high" because of the match cost. We always present the maximum potential company cost to management whenever we recommend an initiative to increase participation. If the company is not willing to pay this cost, our match formula needs adjustment. It is a flawed goal that sets the company match hoping that fewer of the rank and file employees will participate in order to keep costs down. The 401(k) plan match is one (and maybe the only) rewards program that aspires to provide compensation at an equitable level for all employees.
We can't expect the dynamics of a plan to work miracles. That why I think it's very important for an employer to sometimes step outside of the plan to see why it is an employee is not receiving the message. Is it because of high debt and they don't have the extra cash? Is it because the information they are receiving is too technical? Is it because they think they're too young? Are they putting kids through college?
March 2007 was the 11th year we have held *** Financial Wellness Month. We have a fair with about 20 vendors, offer a series of 6 to 8 lunch-and-learn classes on a variety of topics from getting out of debt to basic budgeting to saving for college to buying/selling a home. Plus we run a series of financial and/or retirement planning classes. We've also been conducting retirement planning classes since 1986.
Does it work? Our 401k has 90% participation, an average deferral of 8.5% (50% of first 6% match), and we DO NOT offer loans on our plan. I think it works.
| 1. | More education would be the best. I would love to have workshops where we sit down with employees and an investment advisor and sign them up right there on the spot! |
| 2. | We have 98% enrollment, so rather than automatic enrollment, I'd like to add automatic increase to coincide with the annual payraises. I chose the above because we have a 6 month wait and if eligible upon hire, more employees might enroll at the same time as they're enrolling for other benefits. |
| 3. | Would love to increase the match but that is very challenging since I would need to convince the two partners in our law firm to part with the additional funds! |
| 4. | Breakout all fees on quarterly statement showing all recipients of fees paid by participants. |
| 5. | Targeted communication pieces to participants that provide instructions and information on either increasing their deferral % (if it's remained stagnant since date of enrollment) or diversifying their holdings (if they never moved out of the default investment) or so tips on understanding allocation strategies (for those who are already more diversified). |
| 6. | This is from my perspective; not the companies. I would like an increased match or a winning lottery ticket. |
| 7. | We used to have each employee return a form to us but then we switched providers and made the process more automated but it allows the employee to forget about it. |
| 8. | Haven't been able to sell idea yet due to unsophisticated manufacturing workforce and management perception of potential problems from employee complaints of "messing with my paycheck" - even though they would fail to opt out. |
| 9. | I don't know if I'd actually choose a lifecycle fund, but I'd like to see the option out there. |
| 10. | Want to have the union to agree to automatic enrollment and to do so retrospectively. |
| 11. | Still desire to add a mutual fund window for those more experienced investors. |