Vermeer works to boost 401(k) plan

Battered by the economic crisis that hit its business hard in 2009, Vermeer Corp. moved emphatically to repair damage to its 401(k) profit-sharing plan by encouraging greater participation, higher employee contributions and greater investment-option diversity.

The company's efforts to improve its $242.6 million plan caught the eye of the White House. In July, Vermeer was one of several companies cited by the White House Conference on Aging for establishing best practices to help participants achieve a secure retirement.

Vermeer enacted some strategies this year, and more changes are on the way — most notably the creation of a custom target-date series scheduled for mid-2016.

As a result of the economic crisis, “people worked reduced hours,” explained Cheri Klyn, director of shared services for the agricultural and industrial equipment company based in Pella, Iowa, whose 401(k) plan has about 2,900 participants. “People reduced their 401(k) contributions, or they stopped contributing altogether.”

The true scope of the crisis' impact on 401(k) plan participants wasn't realized until a 2011 review showed that the participation rate was down to 75.4% and the average annual deferral rate was down to 5.52%. At the end of 2008, the rates were 93% and 7.6%, respectively.

“What I had seen in the past was that when someone lowers their percentage in slower times, they forget to raise it back up when times are good,” Ms. Klyn said.

By the end of April 2015, however, Ms. Klyn said the participation rate had climbed to 98% and the average annual deferral was 8.43% of salary. By the end of 2014, two-thirds of participants were contributing 6% or more of pay while 18.4% were contributing 10% or more.

The 2011 review also had found that only 19% of participants were on track to achieve “retirement success,” a measurement of whether they were saving enough for adequate retirement income. By the end of last year, 43% of participants were on track for “retirement success.”

Retirement success is based on individual income replacement ratios using current age and income while factoring in salary, account balances and contribution. Success is defined as participants achieving at least a 75% chance of achieving the income replacement ratio through retirement savings and Social Security.

The 401(k) plan's comeback has been fueled by plan-design changes and adjustments as well as greater communication.

Vermeer reinstated its auto-enrollment policy in 2010, suspended in 2009, with a 6% annual deferral rate. Participants can opt out every year.

Vermeer also brought back in 2010 its auto-escalation feature that also had been suspended in 2009. It provides annual increases of 1% of pay until a participant's contributions reach a total of 10% of pay.

In 2011, the company's investment adviser and record keeper, Alliance Benefit Group Financial Services Corp., Albert Lea, Minn., created individual retirement readiness reports for participants to show how much they should be saving for retirement vs. how much they had actually saved.

The retirement readiness reports are only part of Vermeer's vigorous approach to educating participants. For example, the company sends participants statements twice a year to show how much money they forgoing by not contributing at least 6% of pay to take full advantage of the corporate match of 50 cents on the dollar up to 6% of pay.

The statements also show how much money participants should add to get the full match, Ms. Klyn said. Because the 401(k) plan has a “look back” provision with the match, “they can contribute more later in the year and get the full match,” she said.

Alliance also worked with Vermeer to create an education policy statement in 2012 — a company commitment to achieve a 90% participation rate and a 10% average annual salary deferral. The company also set a goal of a 90% rate for participants using investment advice and/or asset allocations tools; the rate is now 89%.

Starting this year, Vermeer raised the cap on its auto features — auto enrollment plus auto escalation — to 12% of annual pay from 10%. In September, the 401(k) plan began offering a financial wellness program — an online service aimed not only at retirement savings but also other financial activities ranging from budgeting to debt management.

And by mid-2016, Vermeer plans to incorporate a custom target date series into its investment lineup.

Vermeer's plan hasn't had a target-date series; instead, it has offered five risk-based asset allocation strategies ranging from the most aggressive (95% stocks and 5% bonds) to the most conservative (60% stable value, 20% stocks and 20% bonds). These risk-based portfolios, available for more than 20 years, are constructed with 22 individual core investments that are also available separately to plan participants.

Rather than offer a target-date series built from scratch, Vermeer executives decided to take the existing risk-based portfolios and develop a glidepath that would enable participants' allocations to change over time. “We talked about this for a while,” Ms. Klyn said. “We didn't want to add 10 more target-date funds.”

Vermeer officials said they wanted to make sure that participants didn't succumb to inertia by, for example, putting their retirement savings in the most aggressive portfolio and then leaving it there as they approached retirement.

“We want to nudge them in the right direction,” said John Koolstra, controller and a trustee of the 401(k) plan. “We want them to move toward something appropriate for their age.”

The custom target-date series remains a work in progress. Vermeer is working with Alliance on the glidepath structure, the components of which could include age, risk tolerance, outside investments, retirement account balances, retirement age and fiduciary risk.

They are gathering data on participants' savings and investing behavior. They will compare Vermeer's risk-based portfolios to target-date funds in the marketplace, and they might, based on their research, add a few more portfolios, Ms. Klyn said.

Also on tap for next year will be paid, mandatory meetings with employees age 55 and older to discuss the custom target-date series, out-of-plan annuities and distributions from the plan. Participants can leave money in the plan when they retire or they can take periodic distributions. “We try to educate them,” said Mr. Koolstra. “We've got the best deal around for fees.” (The all-in fee is 62 basis points).

Mandatory meetings have worked before at Vermeer. After the retirement readiness reports were issued, Alliance held mandatory meeting with each employee. “This made a huge impact,” said Ms. Klyn, noting that in just two years the participation rate rose by 26.7% and the average deferral rate climbed by 57.7%.