Carol Sung really wants participants — current employees, former employees and retirees — to keep their savings in International Paper Co.'s $5.1 billion 401(k) plan, and she continues to look for ways to encourage them to stay.
More participants means more plan assets, which results in economies of scale leading to lower fees for participants and more bargaining power for plan officials, said Ms. Sung, 401(k) product manager at the Stamford, Conn., company and a 2014 Innovator Award winner.
Yet Ms. Sung has found that despite a series of plan design changes over the years, more than half of workers 55 and older take their money out of the plan within two years of leaving the company. An estimated 70% to 80% of distributions are rollovers.
That has led her to implement the newest “encourage-employees-to-stay strategy,” which aims to help older participants prepare for spending in retirement, said Ms. Sung.
In late 2013, International Paper's 401(k) plan launched a program aimed at plan participants 55 and older that would transform their accounts into a steady stream of payouts in retirement without resorting to an in-plan annuity.
“We didn't want an insurance product due to fiduciary concerns,” Ms. Sung said. The program, called Income +, is a managed account offered through Financial Engines.
“We thought age 55 was a critical point, because these employees had built up their accounts and they might be thinking about retirement,” Ms. Sung said.
“I've been here 10 years, and we've been trying to help employees build their wealth” through plan features such as auto enrollment, an improved corporate match and a simplified investment menu, she said. “We spent so much time on the accumulation side. We really didn't have something to help them spend in retirement.”
So far, 450 participants have joined the program, which amounts to about 2.4% of those eligible. “Ten percent would be great,” Ms. Sung said. “We're just hoping that, over time, the success rate will be measured by fewer people moving out of the plan.”
Keeping participants' in the plan while creating a retirement income solution for older workers struck a chord with the judges.
“I liked the focus on retirement income solution as a retention mechanism to keep terminated employees/retirees in the plan, and broader focus on retention of assets,” one award judge said.
“I think it's good that a private-sector plan sees the importance of keeping money in the plan after retirement, rather than pushing employees out” to individual retirement accounts, said another judge.
As it encourages older employees, International Paper has taken other steps to encourage other participants to keep money in the plan.
Since July 2012, it has sent letters to people who recently left the company to discuss distribution options, including keeping their money in the 401(k) plan. It has sent personalized calculations about the tax consequences for cashing out of the 401(k) plan, and it has conducted follow-up phone calls with these ex-employees to discuss their options.
In the first 18 months after the “stay over” letter campaign began, about 4,500 employees, or 48%, stayed in the plan while the rest either did a rollover or cashed out.
The “stay over” letters continue to be generated each month when employees leave the company, said Ms. Sung, who isn't finished seeking ways to keep participants - and their money - in the 401(k) plan.
Starting this month, International Paper will participate in a pilot program conducted by its record keeper (formerly called J.P, Morgan Retirement Plan Services but now known as Empower Retirement) to help participants put their outside retirement savings — plan balances from former employers, individual retirement accounts — into International Paper's 401(k) plan. n