A Leg Up

Retirement plan advisers are often spearheading plan design and participant initiatives. However, it takes a responsive plan sponsor and investment committee to be able to act on such recommendations. The winners and finalists in the 2015 PLANSPONSOR Plan Sponsor of the Year award program—representing many types of plans and sizes—were generally selected for their innovative plan design and impressive plan metrics, and many of those achievements were made possible by the support and advice of a retirement plan adviser. What follow are case studies showing how advisers worked successfully with these Plan Sponsors of the Year to drive better outcomes.

JE Dunn Construction Co.

Grant Arends, president of Alliance Benefit Group of Kansas City Inc., in Kansas City, Missouri, helped JE Dunn Construction Co. bolster its 401(k) profit-sharing plan and employee stock ownership plan (ESOP) so that employees can attain a sustainable retirement. The goal is to replace 50% of employees’ income, with the expectation that Social Security will provide another 25%, for a total replacement ratio of 75%.

Arends introduced the company, headquartered in Kansas City, to economist Shlomo Benartzi’s 90-10-90 target of a 90% participation rate, savings rates of 10% or higher and at least 90% of participants enrolled in a lineup of professionally managed funds. While the company was already automatically enrolling new hires at 6%, it had never performed a re-enrollment, so Arends guided JE Dunn in that process and introduced the company to custom portfolios, created by Alliance Benefit Group, and a suite of target-date funds (TDFs).

Because many of JE Dunn’s 2,000 workers, who are spread over 20 locations, speak and write Spanish, Alliance created a dedicated Web portal for participants, so they could find education on the plan in both English and Spanish. The firm also used a multichannel communication strategy to explain the changes to the plan; this included delivering information through the workplace and sending it to employees’ homes. Before JE Dunn began working with Alliance Benefit Group, the participation rate in its plan was 77%. The initiatives have increased that rate to 92% today, with an average deferral rate of 6.8%; additionally, 92% of the participants are invested in either the custom portfolios or the target-date funds.

Arends recalls that when planning for changes, William Dunn Sr., son of founder John Ernest Dunn, said that the last thing he wanted to see was employees on a street corner or having an unsustainable retirement because the company failed to do its part.

Trover Solutions, Inc.

In 2009, when Glen French joined Trover Solutions of Louisville, Kentucky, as chief financial officer (CFO) and chairman of its investment committee, participation in the 401(k) was 77%, and participants contributed, on average, a mere 1% to 2% of their salary—even with Trover’s dollar-for-dollar 6% match. Realizing that at this rate employees would never be retirement ready, last year French turned to financial consultant firm Hilliard Lyons, also in Louisville, Kentucky.

The first thing the consultants suggested French do was read economist Shlomo Benartzi’s book “Save More Tomorrow,” to learn about the 90-10-90 progressive plan design concept of a 90% participation rate, savings rates of at least 10% and 90% of participants invested in professionally managed portfolios.

To reach those goals, starting last July, consultants at Hilliard Lyons had Trover begin to automatically enroll employees at a deferral rate of 6%, and helped the company select The Standard, an investment firm with a managed account that Trover now uses as the qualified default investment alternative (QDIA). Next, Hilliard Lyons consultants advised that Trover begin to automatically escalate participant contributions by 1% to 2% a year, based on The Standard’s comprehensive analysis, to determine whether participants are on a solid glide path to a successful retirement.

Aided by the two service providers, Trover’s retirement committee also decided to change the vesting schedule to 20% annually over the course of five years; it had been 0% the first year and 20% each year thereafter. “I viewed this as a significant participation de-motivator,” French says. Average tenure at the company, which works in insurance subrogation, is less than two years. Ninety-six percent of Trover’s employees now participate in the plan, with an average savings rate of 5.9%. Further, 91% of those participants remain invested in the QDIA managed account.

Wharton-Smith, Inc.

Although Wharton-Smith, Inc. was automatically enrolling new employees at 4% in 2013, participation at the construction company, headquartered in Sanford, Florida, was only 49% and deferrals averaged 4.48%; 75% of participants were invested in the plan’s then-default: a conservative risk-based fund. When Jason Johnson, a senior vice president with UBS Financial Services Inc. in Orlando, came on board as plan adviser late that year, he saw a company open to fresh ideas. “We asked, ‘How do we improve participant outcomes?’” Johnson says. “We said, ‘Let’s start by bidding out the plan [to recordkeepers] and see if we can get better fees and services. Then let’s look at plan design.’”

The plan’s recordkeeper at the time had done too little to discourage employees from opting out of automatic enrollment, says Jim Levasseur, human resources (HR) director at Wharton-Smith. “Also, we did not [impress] very hard on our field employees—who were making $12 to $13 an hour and living paycheck to paycheck—that they needed to start saving for retirement,” he says. “There was a lot of employee inertia,” Johnson says, making “it incumbent on the plan sponsor to help participants have better success.”

Last year, Wharton-Smith switched recordkeepers, to Empower Retirement, as well as default investments, choosing target-date funds (TDFs) from BlackRock. This January 1, with Johnson’s help, Wharton-Smith raised the initial deferral for new hires from 4% to 6% and began re-enrolling participants at 6%. The company also increased its match from 50% of the first 4% to 50% of the first 6% and reduced the eligibility to participate from 90 to 60 days.

To support the largely Spanish-speaking labor force, UBS held group meetings at the various job sites, which are spread around five states, and had a Spanish-speaking staff member from headquarters on hand. It also translated written materials into Spanish.

Today, the plan has a 95.3% participation rate and an average deferral rate of 7%. Most impressively, 73% of participants are on track to replace 75% of their income or more.

Community Blood Center/Community Tissue Services

Two years ago, Community Blood Center/Community Tissue Services (CBC/CTS) of Dayton, Ohio, a provider of blood and tissue to hospitals, was aware that participants’ deferral rates to its 401(k) plan were low and that some participants lacked sufficient investment diversification.

“We knew that wouldn’t serve them well in the long term,” Chief Financial Officer (CFO) Julia Belden says.

Not only did employees need help, but so did the investment committee. To aid the committee, CBC/CTS hired ProCourse Fiduciary Advisors LLC of Carmel, Indiana, as a 3(38) investment manager, giving it discretion in overseeing the plan’s investment options.

 So, in conjunction with its switch to recordkeeper Transamerica Retirement Solutions in late 2013, the company conducted a two-pronged re-enrollment. This process increased the contributions of participants who were not maximizing the match and defaulted those who had chosen their own investments into custom target-date funds (TDFs). The plan increased its match from 50% of 4% of pay to 50% of 6% of pay and inaugurated an annual 1% employee deferral escalation with a 10% cap.

CBC/CTS also gives employees a 4% profit-sharing contribution, regardless of whether they participate, after one year of service. Increasing the number of participants maximizing the match has cost the company $100,000 a year in additional funding. Further, the company decided to pay all plan administrative costs—another $100,000.

Today, 84% of participants save enough to earn the maximum match, and 95% of Community Blood Center’s employees participate in the plan. Between the employer and participant contributions, “within four years, all but a few employees”—i.e., those who opted out—“will save 17% a year for retirement,” Belden says. “Our employees should be in good shape by the time they retire.”

Massey Services, Inc.

Massey Services, Inc., got its retirement readiness stats up dramatically in one year—from 6% of employees on track to replace 80% of income in retirement, in January 2014, to 51% of employees on track today. How? A combination of plan design changes and companywide employee education.

Massey was able to achieve this with the guidance of Chepenik Financial, which became its plan adviser in 2013. “This adviser came in and said, ‘We want to talk to you about retirement readiness because that is really the overall goal of the plan,’” recalls Jean Nowry, executive vice president and chief financial officer (CFO) at the pest-prevention and landscape services company in Orlando, Florida.

Together, Massey and advisers from Chepenik’s Orlando office looked at various design changes the plan could make to improve retirement readiness. “What it came down to was we really wanted our folks participating at the match level,” which is 62 cents on the dollar, up to 6%, Nowry says.

Chepenik convinced Massey to implement automatic enrollment at 4% last May. This has boosted the average deferral rate from 1.98% to 4.31% and raised the participation rate to 92%. Chepenik also convinced the company to re-enroll participants saving less than 4% at that level and to reduce eligibility for participation in the plan from six months to 60 days, in line with eligibility for the company’s health care insurance. The plan now automatically escalates employees’ contributions by 1% a year, up to a 6% cap.

Prior to the rollout, Chepenik educated participants at their work sites about how automatic enrollment can help them with retirement readiness. Additionally, the adviser tells employees that their financial wellness is just as important as their physical wellness.

Showplace Wood Products, Inc.

In 2013, Showplace Wood Products, Inc., decided to look closely at whether the company’s 401(k) plan ultimately could provide enough retirement income for employees. With the help of its advisory firm, Alliance Benefit Group LLC in Albert Lea, Minnesota, it found that it had a stagnant 56.5% participation rate and average deferrals of just 2.5%.

To address this, in 2014, Showplace began automatically enrolling employees at a 3% initial deferral with an automatic escalation of 1% up to an 8% cap. The company matches 100% of the first 3% of pay an employee defers, then 50% of the next 2%, for a potential 4% employer contribution.

Additionally, after employees of the cabinetmaker, in Harrisburg, South Dakota, have worked 1,000 hours, they are enrolled in the company’s 100% employee-owned employee stock ownership plan (ESOP); the company’s contributions vary annually but average 7%. Therefore, an employee who contributes 5% of pay to the 401(k) gets a 4% match, plus an employer ESOP contribution averaging 7%, for a total contribution of 16% of an employee’s salary, all invested in tax-deferred investments.

Alliance Benefit Group holds mandatory group meetings, optional one-on-one meetings for existing employees and individual meetings for new hires. At the individual meetings with existing employees, Alliance provides a customized retirement-preparedness projection of their retirement benefit at age 65.

“We wanted to coach people that if they put away a little bit at a time, over time they will see it really grow,” says Emory Lee, Showplace’s chief financial officer (CFO). “We were trying to help them understand that you’ve got to put a little ‘skin in the game.’”

Today, 95% of employees participate in the plan, with an average deferral rate of 4.1%.

Swiss International Air Lines Ltd.

Swiss International Air Lines Ltd.’s U.S. employees were investing very well in their 401(k) plan. They had a 95% participation rate, an average 11.5% deferral rate—well above the company’s 4% dollar-for-dollar match—and an average balance of $156,000. However, the plan was falling short in investment diversification; only 20% of plan assets were in target-date funds (TDFs) as of December 2013.

“The overall target-date fund usage within our plan was below average, and we weren’t seeing participants periodically rebalancing their accounts or adjusting target allocations, despite our aging work force,” says M. Christine Javora, human resources (HR) specialist at the airline’s offices in East Meadow, New York.

Working with its adviser, AEPG Wealth Strategies of Warren, New Jersey, and its recordkeeper, Empower Retirement, in December 2013, Swiss International re-enrolled participants into a new default, J.P. Morgan SmartRetirement TDFs.

“The target-date funds help give participants some active management and continuous rebalancing, to better keep them positioned in the market, based on their age,” Javora says.

The re-enrollment boosted the percentage of plan assets in the funds to 46%. Before re-enrolling the employees, AEPG Wealth Strategies sent participants written materials explaining the change and held group meetings.

Gillette Children’s Specialty Healthcare

In April 2010, Gillette Children’s Specialty Healthcare, headquartered in St. Paul, Minnesota, looked at its 403(b) plan and found that because it offered a 2% match, most of its employees contributed just 2% to the plan. After much discussion, in 2013, with the help of CAPTRUST Financial Advisers of Minneapolis, it decided to eliminate its 3.29% discretionary contribution and change the automatic deferral rate to 5.3% with a 5.3% match. Just 12 months later, total plan assets rose 27%, from $79.5 million to $101 million, participation rose from 82% to 96%, and the average deferral rate increased from 6.3% to 6.8%.

Next, working with its provider, Lincoln Financial Group of Radnor, Pennsylvania, the hospital replaced several funds in its investment lineup with fewer, and lower-cost, funds; included was its qualified default investment alternative (QDIA), changed to Vanguard target-date funds (TDFs).

To educate employees about the plan revisions, Lincoln Financial retirement consultants held one-on-one meetings with physicians and executives and facilitated 12 group meetings with the rest of the staff at Gillette’s two campuses.

Since the switch, two years ago, the 403(b) plan has seen more assets move into the target-date funds—an increase from 51% of plan assets to 84%. Also, plan adviser Dan Esh from CAPTRUST annually reviews investment expenses, benchmarking them against similar plans.

“I’m really proud of how we were able to increase participation as well as average deferral rates,” says Kit Brady, vice president of human resources (HR), education and guest experience at Gillette. “I feel much better sleeping at night with this plan and the work we did to help people be able to retire when they want. We did that not just with automatic enrollment but with re-enrolling into target-date funds. Few of us are very good at investing, so those target-date models made it simple to invest well.”

Gillette Children’s Specialty Healthcare

In April 2010, Gillette Children’s Specialty Healthcare, headquartered in St. Paul, Minnesota, looked at its 403(b) plan and found that because it offered a 2% match, most of its employees contributed just 2% to the plan. After much discussion, in 2013, with the help of CAPTRUST Financial Advisers of Minneapolis, it decided to eliminate its 3.29% discretionary contribution and change the automatic deferral rate to 5.3% with a 5.3% match.

Just 12 months later, total plan assets rose 27%, from $79.5 million to $101 million, participation rose from 82% to 96%, and the average deferral rate increased from 6.3% to 6.8%.

Next, working with its provider, Lincoln Financial Group of Radnor, Pennsylvania, the hospital replaced several funds in its investment lineup with fewer, and lower-cost, funds; included was its qualified default investment alternative (QDIA), changed to Vanguard target-date funds (TDFs).

To educate employees about the plan revisions, Lincoln Financial retirement consultants held one-on-one meetings with physicians and executives and facilitated 12 group meetings with the rest of the staff at Gillette’s two campuses.

Since the switch, two years ago, the 403(b) plan has seen more assets move into the target-date funds—an increase from 51% of plan assets to 84%. Also, plan adviser Dan Esh from CAPTRUST annually reviews investment expenses, benchmarking them against similar plans.

“I’m really proud of how we were able to increase participation as well as average deferral rates,” says Kit Brady, vice president of human resources (HR), education and guest experience at Gillette. “I feel much better sleeping at night with this plan and the work we did to help people be able to retire when they want. We did that not just with automatic enrollment but with re-enrolling into target-date funds. Few of us are very good at investing, so those target-date models made it simple to invest well.”

City of Las Vegas

The City of Las Vegas has three 457 plans and three different recordkeepers administering them: One is administered by MassMutual, one by ICMA-RC and one by Nationwide. This redundancy was the reason why, two years ago, the city hired Freddie Sarno, corporate retirement director with Morgan Stanley Wealth Management, Las Vegas, to assess its three recordkeepers and issue requests for proposals (RFPs) to replace them—with the goal of reducing administrative costs by 15 basis points (bps). The city’s unions immediately pushed back, making management realize it should first educate participants, form an investment committee of four executives and four union representatives, and give the committee formal fiduciary training.

Sarno provided this training, then helped the committee consolidate and improve its 104 fund offerings. He also coordinated educational efforts with the three recordkeepers. As he puts it, the goal was “to transform the plan to one focused on participant education that offers a best-in-class retirement benefit to participants and their fiduciaries and that exudes fiduciary excellence.”

When he first came on board, Sarno says, Las Vegas “was behind the curve in the government space. They had never had any formal process, documentation, committee or investment policy statement [IPS]. I realized the opportunities for what was possible.”

With Sarno’s guidance, Las Vegas has reduced its fund lineup by 15%, to a total of 83. Sarno would like to see that trimmed by another 15% over the next 18 months and, eventually, for each 457 plan to have a 15-fund limit.

Sarno also helps Las Vegas coordinate with its three recordkeepers for its annual two-day educational seminar—the “Investment and Retirement Palooza: Making Dollars and $en$e”—and the accompanying three road shows at city satellite offices, which the city started two years ago. This emphasis on education is largely why the plan has a 65% participation rate, average deferrals of 7% and an average balance of $90,000.  —Lee Barney, Judy Faust Hartnett, John Manganaro and Rebecca Moore

Art by Gérard DuBois