Faced with a substantial percentage of participants having outstanding loans from the 401(k) plans, PepsiCo Inc.'s Chad Ryan led a strategy that not only changed plan design, but also provided a comprehensive education program to illustrate the impact of loans on retirement savings.
“We've found that the more education employees are exposed to, the less likely they are to mess with their retirement savings,” Mr. Ryan, the Somers, N.Y.-based director of retirement plans, said in an e-mail.
“Take borrowing against a 401(k). Once employees understand the potential negative implications and the various other options they can consider, they start to think twice,” he added. “Over time, this will breed greater retirement security and smarter financial decisions.”
Mr. Ryan's efforts earned an Innovator Award for addressing plan leakage — the early withdrawal of assets for non-retirement purposes — and impressed the judges for both the content and scope of PepsiCo's effort.
“I applaud PepsiCo for being upfront and honest about the drawbacks of taking loans/withdrawals through 401(k) plans,” one judge wrote.
“I've seen other plan sponsors limit the number of loans available, but PepsiCo ... coupled this with education and support to participants about debt management,” another judge wrote.
On a nationwide basis, one-third of PepsiCo's 96,000 plan participants had outstanding loans. Beginning last January, the company changed the plans, with combined assets of about $6.4 billion, to allow participants one outstanding general loan instead of two under most circumstances. Now, two loans are permitted only if one is used for the purchase of a primary residence.
“We saw loans increase following the financial crisis in 2008,” Mr. Ryan wrote. “We began to discuss ways to address this in 2010. We didn't want to rush any changes. ... By 2012, we were ready to make some changes and we've seen good results. Employee feedback has been positive.”
Mr. Ryan acknowledged that any change in a company benefit is bound to cause some employee apprehension. “That's only natural. It's our job to make sure employees understand why we're making the change and the value our programs provide. We got a bunch of questions from employees, but we answered them directly and explained how this fit within our overall strategy to ensure we continue to offer competitive retirement savings plans.”
PepsiCo also has created a Healthy Money 401(k) scorecard, in which it ranks company divisions and individual locations on their employees' retirement savings actions. Measurements include participation rates, use of the corporate match and account-balance diversification.
With more than 2,500 scorecards, PepsiCo has used the information, focusing on locations with more than 100 people, to determine if it should make changes in the plan design.
The changes have been accompanied by an enhanced financial education program that includes one-on-one counseling with representatives from Pricewaterhouse- Coopers, concentrating on cash and debt management. In addition to financial workshops that had been offered for several years, PepsiCo added a workshop on maximizing benefits of the 401(k) plans and addressing the adverse impact plan loans have on retirement savings.
Since June, PepsiCo employees have been able to take a financial fitness review online. They receive a personalized financial wellness score and an individualized report via e-mail from PwC that identifies important factors influencing their financial wellness and that makes recommendations.