Retirement Benefits: Getting Employees in the Game

    As a result, the company wanted to enhance its 401(k) plan. In discussing which enhancements to make, someone suggested automatic enrollment.

    But Lasko, a senior manager of global compensation benefits, bristled at the idea.

    "We felt that automatic enrollment was putting people in the plan and giving them the opportunity to put zero thought about how much to save and where to invest," he says. "We wanted to get them in the game and [have them] own that first step."

    Many employers have adopted automatic enrollment to make sure their employees are on track for saving enough for retirement. And even more organizations are expected to do so in coming months as a result of the recently passed pension legislation, which encourages them to do so. But putting a 401(k) plan on auto-pilot shouldn’t be a replacement for targeted communications, experts warn.

    Doing so could result in low contribution levels because employers tend to set the default for automatic enrollment. A 2002 study published in the academic journal Tax Policy and the Economy, "Defined Contribution Pensions: Plan Rules, Participant Decisions and the Path of Least Resistance," found that contribution rates average 7.3 percent but drop to 4.4 percent after automatic enrollment is introduced.

    "The problem with automatic enrollment is that it doesn’t do anything to change people’s behavior," says Alison Salka, director of behavioral communications and research at MassMutual Financial Group.

    A recently released MassMutual paper cites a 2003 study showing that out of a group of 401(k) participants who believe their savings rates were too low, 35 percent planned to increase their deferral rate, but only 14 percent actually followed through on that intention.

    To address employee inertia, many companies like Avaya, Trinity Health, a Novi, Michigan-based health care provider, and Detroit-based civil engineering firm Wade Trim are sending out targeted, personalized communications to get their employees’ attention. A recent Hewitt Associates study shows that 54 percent of companies are offering personalized communications to employees to get them to save more for retirement.

    Additionally, 401(k) providers like MassMutual and Fidelity Investments are developing new programs for employers to get their message across to employees.

    "Everyone is realizing that doing automatic enrollment, increases and rebalancing is a good start. But if you want individuals to really be ready for retirement, you need to engage them in retirement planning," says Ian Sheridan, vice president of marketing and business development at MassMutual. "It’s not enough to be on the path. They need to understand why they are on that path so that they’re not overwhelmed when they get to retirement."

Finding the right mix
    Employers agree that the main challenge in communicating to employees is finding a balance between personalizing their message and making employees feel as if Big Brother is watching.

    On the other hand, employers need to make sure they get past the information overload employees receive every day, says Richard Cordray, who until recently was senior manager of HR communications at Avaya.

    On top of doing educational sessions through a "401(k) day," which Avaya launched in 2005, the organization also started sending personalized statements to employees through Fidelity’s FirstPerson communications program.

    Through the program, Avaya’s 401(k) participants receive a statement that includes, among other things, information on how much savings they will accrue by the time they turn 65 based on their age and contribution rate.

    Similarly, employees who don’t participate in the plan receive postcards encouraging them to contribute. Low-rate contributors also get mailers urging them to increase their deferral rates and take advantage of the company match.

    Lasko couldn’t say how much participation and deferral rates have climbed as a result of the personalized contacts. But overall, Fidelity has seen an increase in both deferral rates and participation at plans that use its FirstPerson program, says Jack Callahan, president of Fidelity Institutional Retirement Services.

    Employers using the personalized statements see a 7.9 percent average deferral rate at the time employees enroll, compared with 7 percent for those that don’t use the statements.

    Additionally, 7.5 percent of the participants in these plans take action after receiving personalized statements. Using personalized statements can be particularly effective in getting the attention of younger employees, who often aren’t thinking about retirement, Cal­lahan says.

More targeted approach
    Trinity Health has opted for a more direct approach with its personalized communications to its 55,000 employees. Trinity sends out specific communications to employees who are investing improperly or are not taking full advantage of what the 401(k) plan has to offer, says Silvia Frank, manager of defined-contribution plans.

    Like Avaya, Trinity, which has a 72.5 percent participation rate, doesn’t offer automatic enrollment. It’s just too expensive, Frank says, but the company is still considering it for the future.

    Trinity provides "express enrollment," in which it hands out postcards to new employees during their orientation. The new hires can check a box and be enrolled.

    But employees often make mistakes in how they invest, Frank says. Some employees invest in several asset allocation funds, when the whole purpose of these investment options is to be the only investment.

    Trinity sends letters once or twice a year to its employees explaining how asset allocation funds are designed to be a sole investment and encouraging employees to choose one that fits their investment needs. "We encourage them to call the customer service line," Frank says.

    Similarly, Trinity sends communications to employees who are only contributing to their 401(k) plans on an after-tax basis, notifying them that they aren’t getting all the available benefits. "We have whittled those participants to only a couple hundred now," Frank says.

    The company also targets employees who have all their money invested in a stable-value fund, which is too conservative to get most investors where they want to be for retirement.

    Trinity offers a system called Enroll Express, which uses employees’ birth date and compensation level to estimate how many years they have until retirement and how much they will need to save.

    Through the program, which was designed by Diversified Investment Advisors, Trinity’s 401(k) plan pro­vider, Trinity can suggest ways that employees could save more, Frank says.

    Currently, Trinity is conducting a survey of its non-participants to find out why they are not contributing to the 401(k) plan.

    The last targeted message Trinity Health is developing is aimed at employees who have stopped contributing to their 401(k) plans. "Particularly in the Detroit area, we have seen a lot of employees freeze their deferrals," Frank says. "It’s challenging because we do not want to come off as too paternalistic."

    Trinity Health has seen 2 percent to 9.5 percent of its employees who received a mailing make a change, although determining response rates is "not an exact science," Frank says.

    Wade Trim has taken an even more direct approach. In 2002, faced with an 80 percent participation rate, the company’s retirement committee established a mandate to achieve 100 percent participation, says Timothy Mc- Kindles, people services group manager.

    "We have a lot of educated individuals with master’s degrees and Ph.D.s, and they have a lot of disposable income," McKindles says. "We didn’t want them to spend it all; we wanted them to prepare for retirement."

    To do this, the committee’s six members agreed to reach out to all employees who were not participating in the 401(k) plan.

    Each retirement committee member was given a list of employees. Every quarter the committee would meet and discuss their progress, McKindles says.

    "Our only guidelines were to use your own discretion and don’t harass people," he says.

    On top of that, Wade Trim also had its 401(k) record keeper, Putnam Investments, personalize its 401(k) statements to include employees’ names and how much they would need to save for retirement.

    "The majority of employees appreciated it," McKindles says. However, there were a few complaints from employees who thought the company was overstepping its bounds, he admits.

    Since Wade Trim is a small company with 450 employees, McKindles was able to reach out to employees who voiced their concerns and explain the company’s intentions.

    Having this kind of mechanism in place is a critical step for employers who want to do more targeted messaging to employees, McKindles says. Companies need to make sure they are aware if employees aren’t happy with the communications, he says.

    "If you have 150,000 employees, it might be more difficult. But on some level there should always be some sort of employee advocate," he says. And often, employers can ask their 401(k) plan administrators to help.

    Today, Wade Trim’s 401(k) participation is at 94 percent.

Looking ahead
    Employers and 401(k) providers say technology will play a bigger role in helping companies with targeted communications.

    To this end, MassMutual last year launched technology that enables employees to enroll and make changes to their 401(k) investments through a wireless device. The system sends employees’ data to plan sponsors on a real-time basis so that they can track the effectiveness of the tools.

    Initial studies have found that plan sponsors using the system during enrollment meetings have seen enrollment of about 90 percent, and 24 percent increased their contribution rates. "In a usual enrollment meeting, a company might have 100 percent of employees say they want to enroll, but then they never do," says MassMutual’s Salka. "This allows them to take action right then and there."

    MassMutual is developing "smart messaging" for its automated call center responses, so when employees call in they will be asked questions about their statements and given suggestions on maximizing their retirement savings, Sheridan says.

    While such tools may help employers better educate employees about saving for retirement, "we are still a long way off from where we need to be," says David Wray, president of the Profit Sharing/401(k) Council of America, a consortium of plan sponsors.

    "Employees will learn these skills over time," he says. "But it is going to require a lot of patience and effort."