Many workers might not see the point of participating in a company-sponsored retirement plan without some sort of employer contribution. The employees of The Farfield Co., however, clearly do.
Workers there participate in — and aggressively contribute to — the construction company's 401(k) plan even though the company doesn't offer an employer contribution of any kind.
In fact, their rates of participation and deferrals would make most plan sponsors envious. Farfield employees contribute an average 11% of their paychecks to the $20 million plan with 82.7% of the company's 197 eligible employees participating. That compares with average deferral rates of 7.1% and average participation rates of 60% for small plans with up to $20 million in assets, according to Vanguard Group Inc. research.
Kathleen Long, Farfield's vice president of human resources in Lititz, Pa., attributes the strong metrics to employee education, flexible plan design and online investment tools. In addition to auto enrollment and auto escalation, the company allows participants to change their deferrals rates throughout the year, with many reducing their contributions during the holidays "to put more money back in their paychecks," she said.
The flexible deferral feature permits participants to make changes as frequently as every week simply by going online to the retirement plan website. "We have worked to make participation as painless as possible," Ms. Long said.
Farfield is among the thousands of small plan sponsors that due to cost considerations and other reasons do not offer employer matching or non-matching contributions. While they do not kick in money of their own, they nevertheless want to give employees the opportunity to save for retirement and more importantly want them to be aware of the benefits of participating in an employer-sponsored plan, according to industry observers.
Of 11,300 small plan sponsors with up to $20 million in assets, 23% do not offer any type of employer contribution, according to Vanguard's small business edition of the 2019 "How America Saves" report. For startup companies, the percentage not offering a contribution rises to 27%.
Cost is one of the biggest factors preventing companies from contributing money into employee retirement accounts. "The employer may not have consistent earnings or profits that would allow it to make and sustain a financial commitment to fund a future need such as retirement," said Jack Towarnicky, executive director of the Plan Sponsor Council of America in Columbus, Ohio.