FA-IQ reached out to retirement-focused advisors ranked on the Financial Times FT 401 list of top advisors to ask:
What’s the most effective tool you’ve used to help increase contribution rates?
Dennis Bielik, of TCG Advisors in Austin, Texas, has been in business 20 years and manages $3.5 billion:
Participants are unlikely to have access to other forms of quality financial advice, let alone a fiduciary. With that in mind, TCG’s focus on plan design still remains the most impactful way to improve participant levels. We focus on increasing participation through autoenrollment, auto-escalate and other plan design features.
Using employee education and engagement is a bonus to this structure — a combination of in-person communication and technology is provided to better educate our audience. Together, this allows us to capture users that value a hands-on experience.
A trusting relationship between employees and their benefits provider takes roughly three months to establish. Meetings are scheduled to develop rapport and encourage employees to get involved. Participants share their experiences about our services through word of mouth, building credibility for TCG.
Our mission and services resonate and connect with employees; therefore, participation in retirement plans is growing significantly. We saw particularly large growth over the plan year in our Erisa plans. Current users increased their contribution rates, in addition to new participants buying into a plan.
New growth motivated TCG to offer debt and budget reviews as a way to help employees find new ways to save for retirement. An income gap analysis option was added to assist plan participants in determining the amount they should contribute each year. These tools help employees feel comfortable investing in their retirement plan and assist in building trust with TCG.
As a "for instance," one of our clients is a firm with 400 employees. For this plan we offer participants a monthly one-on-one appointment with a certified financial planner at TCG.
Within 30 minutes of their HR department launching this offering, all appointments were filled. Three months of successfully being booked out led the company to extend their employees’ time with us, adding an extra day each month. Proving ourselves as a high-quality partner has built trust between our institutions and led them to refer TCG to two outside organizations.
Dan Chillemi of Promus Wealth Management at UBS has been in business 15 years:
I will first say that there is no silver bullet when it comes to increasing participation rates. Most often it takes a combination of plan provisions like automatic enrollment and automatic increase, group meetings, one-on-one sessions, and, most importantly, a great culture surrounding the retirement benefits.
A very effective method we’ve used was with a company that had about 600 employees and a participation rate in their plan just shy of 40%. We became advisor on the plan and learned that the previous advisor had been offering monthly one-on-one sessions, but there was a very small group of employees actually attending the meetings because they were voluntary and it was nothing more than an invitation each month if anyone had interest.
Since this was a manufacturing company, we asked our client to allow us to conduct mandatory all-employee meetings. We knew that it was incumbent upon our team to create the interest in having a personal meeting.
We gave the same 20-minute presentation 10 times that day to accommodate various shifts. Before the meeting was over, we passed around a sign-up sheet for one-on-one sessions. The following Friday we came back and conducted one-on-one meetings from 6 a.m. to 5 p.m. and met with hundreds of employees. Each employee filled out an enrollment form or logged into their account to make changes.
The participation rate in the plan jumped to 65% that year. The key to the success was the very brief mandatory meeting, with a sign-up sheet at the meeting, and then the follow-through and call to action with the individual meetings.
Allison Kaylor-Flink, of NFP Retirement in Austin, Texas, has been in the business 28 years and manages $1.3 billion:
When it comes to preparing for retirement, our country is plagued by two realities: procrastination and poor saving habits. Any strategy to increase contribution rates must directly address these barriers.
Auto-enrollment is often the right solution. It eliminates the “I’ll do it later” approach (they almost never do it later) and allows employees to easily begin making pre-tax contributions to their 401(k) accounts.
It is also critical to have an online enrollment system. If the sign-up process takes too long, you risk losing a new participant (and may never get another shot at them), so be sure enrollment is intuitive and quick.
This approach worked well with a printing company in the Midwest with a workforce that was half union. Union employees could receive a 2% company match on a 2% contribution, but participation was less than 10% (proving that even free money can’t overcome the realities noted above). Overall, plan participation was around 47%.
First, we implemented auto-enrollment for all new hires. Then, we did a whole plan sweep of existing employees with no previous election and enrolled them in the plan at a default contribution rate of 3%. By the end of the year, the plan participation rate was over 90%, largely through the addition of blue-collar workers, which helped with discrimination testing.
Another tactic to consider is the auto-increase feature. At the time of enrollment, give plan participants the option to increase their contribution percentages automatically on a set date each year (or better yet, make it the default and require them to opt out if they don’t want it). Going from a 5% pre-tax contribution rate to 6% will drive up contribution rates without having a material impact on an employee’s take home pay.
There are other steps to take, including having a good qualified default investment alternative (QDIA) so employee assets are invested appropriately, and sponsoring one-on-one employee consultations, which take more time and money but create a level of engagement that elevates participation and contribution rates. But it is always best to start by addressing the primary barriers to 401(k) plan participation. Preventing procrastination and making it easy to save will always have the most significant impact.