While auto enrollment and auto escalation
are the best means of encouraging greater
retirement savings by employees, some companies are going further. For instance, Intel,
which had $46 billion in revenue last year,
augmented its auto enrollment plan for new
employees with a re-enrollment feature for the
rest of its workforce. “We targeted thousands of
employees who were not contributing to their
401(k) plans and supported them with education and counseling as to why this was in
their best interests,” says stuart odell, Intel’s
assistant treasurer for retirement investments. The effort paid off, with 50% of the
non-contributing group enrolling.
Gables Residential, an Atlanta-based real
estate developer of primarily multi-family
apartment complexes, tried a different tack.
“We had about a 43% participation rate
in our 401(k) plan in 2008,” notes Philip
Altschuler, the company’s senior vice presi-
dent of human resources. “At the time, we
had 1,300 employees, and the economy was
headed south. People were concerned about
their finances and held back [from participat-
ing in the plan].”
This didn’t square with Gables’ mis-
sion, “Taking Care of the Way People live,”
Altschuler explains. so the company brought
in its 401(k) plan provider, massmutual, to
help hike the participation rate. “We hosted
a health benefits fair where employees could
get free biometric screenings, flu shots, cho-
lesterol checks and the like,” Altschuler says.
“At the fair, we provided each employee a
‘Passport to Health,’ which looked like a real
passport. on the last pages where the stamps
are, we offered $10 off their insurance premi-
ums if they spent a few minutes with mass-
mutual’s retirement education specialists.”
After employees listened to a presenta-
tion by the provider, the participation rate
skyrocketed to 72% from 47%. After a similar
campaign last year, the rate is now 85%.
last year’s effort also included educating
employees on the need to increase their sav-
ings rates, and the average rate rose to 6%
from 4%
state street’s mitchem cites another novel
way to encourage a higher savings rate—a
financial fitness “boot camp.” like a real boot
camp, employees would commit to a defined
period of pain, but it’s financial not physical.
“The idea is to auto enroll employees in the
plan at a 10% savings rate for six months to
determine if they can handle this financially,”
she says.
Although the concept has yet to be imple-
mented, state street and Boston Research
Group surveyed 1,000 plan participants about
their willingness to try it. A startling 75% said
they would take part in a boot camp if their
imminent foreclosure of a house or funeral
expenses for a family member. “Without
such restrictions in place, plans will get
sucked dry,” he says.
By automatically
enrolling them in the
plan, you overcome
their apathy.
401(K) ADVISORS’ sHAPIRo
employers offered one. “more employees are
willing to take direction from their employ-
ers simply because of their anxiety about
ongoing volatility in the financial markets,”
mitchem says. “once they know the facts,
they apparently want employers to force
them to take action.”
Another problem with such loans can oc-
cur when an employee with a loan is fired or
voluntarily leaves the company. “most com-
panies require that the loan be paid back
to the plan within 30 days,” says madrian.
“many employees can’t come up with the
money, however, and end up defaulting.
While this isn’t the same as defaulting on a
bank loan, which would affect one’s credit
rating, it’s still ‘leakage’—money taken out
of the retirement savings system.”
While shapiro says it is tough for em-
ployers to completely disallow hardship
loans, he advises that sponsors limit loans
to employees with certain reasons, like the
other ways to promote better retirement
outcomes include dissuading employees
from taking hardship loans from their plan
savings. “People think because it is largely
their money in the first place that there’s
nothing wrong with borrowing from it,” says
madrian. “If there is indeed a true hardship
that requires immediate access to money,
that’s one thing. But all too often employees
borrow from their savings to do things like
pay for a vacation or buy a new car.”
