No one was more pleased — or surprised — with the outcome of a 401(k) plan re-enrollment campaign than Rose Murtaugh, associate director of pensions for truck manufacturer International Motors.
The company more than doubled the number of employees on track to cover 75% or more of their income in retirement simply by re-enrolling them in the company’s $1.5 billion 401(k) plan.
Before the campaign, only 14.1% of plan's 7,600 participants were on track to meet the 75% income replacement metric. After the re-enrollment, the percentage jumped to 32%.
While the rising stock market accounted for about 25% of the increase, the “other 75% was the re-enrollment,” said Murtaugh, the winner of an Excellence and Innovation award.
As part of the campaign, employees contributing less than 6% to the 401(k) plan were re-enrolled at the default savings rate of 6%, a move designed to maximize the company’s employer matching contribution.
The company matches 50 cents for every dollar employees contribute to the plan, up to 6% of pay.
In addition to automatically boosting their deferral rate, International Motors also enrolled them in auto-escalation, meaning their deferral rate would automatically increase by one percentage point a year, up to 15% of pay.
Employees contributing 6% or more were re-enrolled at their current savings rate with auto-escalation activated on their behalf.
The auto-escalation for employees saving at 6% was “very important” because many of them had taken no action to boost their savings since they were first hired, Murtaugh said.
“They stayed at 6% all these years,” she said.
Murtaugh added that the company only had a “handful of complaints” from employees over the re-enrollment.
“As long as they know that they can opt out of it, a lot of people of people are willing to just try it,” Murtaugh said.
Murtaugh recalled a benefits administrator who declared that she was not going to opt out of the higher savings level and the auto escalation into which she was defaulted, saying she “was going to see if she can handle it.”
“They’re great tools,” Murtaugh said of automated plan features. “As long as you communicate them and employees know they can opt out, there’s not too much noise about it.”
International Motors also changed the vesting schedule on the employer match, making employees immediately vested rather than having to wait five years to get the full amount of the match.
“I see it as sort of a fulfillment of the contract between the company and the employee,” Murtaugh said. “When employees contribute, the match should have no restraints.”
Lastly, International Motors added a true-up contribution, a measure that helped further boost employee retirement preparedness.
Murtaugh explained that the true-up contribution was designed for employees who can’t contribute the full 6% consistently throughout the year. An employee might, for example, contribute 3% for the first six months of the year and then switch to 9% for the remainder of the year. While such an employee has indeed contributed the required 6%, he or she would not get the full 50% match on 6% because he or she was just contributing 3% for half the year.
The true-up contribution would settle the difference between the full match and the actual employer matching contributions made during the calendar year.
For Murtaugh, the true-up contribution boils down to the match commitment the company made. “You contribute, we contribute,” she said. “We should take all the other conditions off that match contribution.”
