The 1% Challenge
We’re sure Jonathon Schultheiss’ good nature and smiling persona translate well with sponsors and participants.
“The cool part about it is we totally had fun with this thing,” Schultheiss, partner and retirement plan advisor (and author) with Greensboro, N.C.-based Gate City Advisors, energetically begins. “I tracked the numbers to report to the committee and I was like, ‘holy cow, this is amazing.’”
He’s referring to the “1% Challenge,” a campaign he and his colleagues developed to gamify retirement saving.
“The committee challenged us to come up with something effective, so we challenged their participants,” he notes.
Challenge is an understatement. The plan sponsor was a property management company that focused on low-income housing. Mainly blue-collar workers and maintenance personnel, they had low participation and salaries on the equally lower end of the spectrum.
“They really needed help, and we therefore pushed the committee to look at auto-enrollment and auto-escalation,” Schultheiss relates. “The HR manager completely shut it down. She said, ‘Nope, our people would freak out if we automatically took money from them and especially if we auto-increase it.’ She wouldn’t entertain the idea because she was afraid of the pushback.”
Hence gamification to make it fun with competitions and prizes.
“They had five education and enrollment meetings in the first year, and we gave away five TVs. The costs have come down on TVs to the point where we could get them for $250, so it only cost the company $1,250.”
The presentation centered on how a small, 1% increase doesn’t necessarily impact participant take-home pay, but through compounding interest and long-term investing, has a major impact on their account balance at retirement.
“The game-portion consisted of matching their 401(k) deferral increase to the number of tickets they receive,” he explains. “Each 1% increase equaled another ticket. We raffled it off at the end of the meeting and somebody left with a TV. It was a big deal, everyone was high-fiving the winner and it was great fun.”
After the first year and five enrollment meetings, Schultheiss and his team looked at the numbers. This is what they found:
- A 42% increase in companywide participation, from 54% to 77%.
- An increase in the average deferral rate initially was 2.85%, and after the meeting was 4.3%.
- The dollar amounts of the deferrals overall increased by 42%, from $240,608 to $366,225 after the meetings.
“Remember, this is without auto-enrollment or escalation and from playing a game that cost the company $1,250,” he emphasizes. Every year since, we get over half of the plan participants to make an increase. Today, their participation rate is 95% with an average deferral rate over 8% and climbing.”
Blue-collar workers deferring 8% with a company match of another 3% is, as Schultheiss rightly notes, significant, but it doesn’t end there. While collecting enrollment and deferral forms back after one particular meeting, he noticed a participant had “20” written on the percentage line, which caused a double-take. After confirming the employee didn’t mean it as a dollar amount, he handed over the 20 raffle tickets.
“He said he had listened to me in the past year, paid off his debt and got his finances in order, and now could afford to defer 20%,” Schultheiss concludes. “We laughed with their committee because if they had listened to us and instituted auto-enrollment and escalation, they’d probably have lower participation and deferral rates. As entrepreneurs and 401(k) advisors, we work hard at putting these things together, have a vison, and are excited about it. We hope it works, and when it does, it is so rewarding.”
Jonathon Schultheiss is Partner and Retirement Plan Advisor with Greensboro, N.C.-based Gate City Advisors.