A leading heavy manufacturing firm in the Midwest recognized early on that the success of their 401k profit-sharing plan could not be judged merely by participation rates, the performance of its investment options, and low-cost structure. A retirement plan must be judged by the number of its participants attaining successful retirement outcomes.
Yet a 2011 aggregate review of the plan revealed that only 19% of participants were on track for retirement success, defined as maintaining the same standard of living during your retirement years as you were accustomed to during your working career.
The participation rate in the plan stood at 75.4%, with an average contribution deferral rate of 4.7%, but the average participant had a retirement income gap of 37%.
Company profile
- Industry: manufacturing
- Size: 3,000 employees
- Retirement plan offered: 401k profit-sharing plan
Plan statistics: initial results (2011)
| On track | Needed income | Average income gap | Part. rate | Average deferral | Contribute 6% or more | Contribute 10% or more |
| 19% | 63% | 37% | 75% | 4.7% | 42.3% | 9.8% |
Major concerns
- General participant retirement readiness
- Number of employees not participating
- Low participant deferral rates
- Poor asset allocation
- Overwhelming the participant with too many funds
- Participants “setting-and-forgetting” contribution rates and asset allocations
- Delivering the advice services that participants desired and needed
Progress with participation
In 2012, this heavy manufacturing company adopted an Education Policy Statement (EPS) emphasizing employee retirement readiness through plan design, high touch communication, and advice services to educate and empower participants.
It mandates an annual benchmarking of retirement readiness scores at both the aggregate plan level and individual participant level and calls for a 90-10-90 goal to be annually monitored—90% participation rate, 10% average deferral rate, and 90% use of an advice component offered by the plan.
The underlying objective—improve retirement outcomes—with a targeted goal of 75% of participants on track to a successful retirement.
By the end of 2013, just over one year after the adoption of their EPS, the use of risk-based asset allocation strategies offered by the plan increased to 89%.
After mandatory onsite group meetings and one-on-ones, the company’s participation rate jumped up to 94.9%, with a 7% average deferral rate. Consequently, almost 40% of their employees were now on track to achieve a successful retirement outcome, and the average participant retirement gap had shrunk to 26%.
Plan statistics: progress (2015)
| On track | Needed income | Average income gap | Part. rate | Average deferral | Contribute 6% or more | Contribute 10% or more | |
| 2011 | 19% | 63% | 37% | 75% | 4.7% | 42.3% | 9.8% |
| 2015 | 43% | 78% | 22% | 95% | 7.7% | 63.4% | 12.9% |
Performance with process
Today, due to auto-enrollment and auto contribution escalation (up to 12%) plan design features, greater than 84% of participants now contribute at least the 6% contribution necessary to receive the plan’s maximum matching contribution, the average deferral percentage has climbed to 8.8%, and over 35% of participants are now contributing more than 10% of their total pay to the plan.
Custom target-date funds composed out of the plan’s core fund menu have been added resulting in 92.1% of participants (representing almost 76% of total plan assets) using some component of plan provided advice service.
Never forgetting the human touch, participants can sign up for intellicents-provided quarterly onsite one-on-one consultations, annual preretirement group meetings are held for employees age 55-plus and their spouses, mandatory one-on-ones have been held twice (most recently in 2018), and intellicents opened a branch office just off the town square to handle participant financial questions and needs.
| On track | Needed income | Average income gap | Part. rate | Average deferral | Cont. 6% or more | Cont. 10% or more | |
| 2011 | 19% | 63% | 37% | 75% | 4.7% | 42.3% | 9.8% |
| 2015 | 43% | 78% | 22% | 95% | 7.7% | 63.4% | 12.9% |
| 2019 | 58% | 83% | 17% | 98% | 8.8% | 84.6% | 34.5% |
Participant statistics: 8 years of improvement
| Participant 1 | 2011 | 2019 |
| Deferral rate | 2.9% | 8.0% |
| Projected end balance | $260,000 | $707,000 |
| Projected odds of success | 52% | 88% |
| Participant 2 | 2011 | 2019 |
| Deferral rate | 4.9% | 8.0% |
| Projected end balance | $280,000 | $1,200,000 |
| Projected odds of success | 31% | 95% |
Bradley K. Arends is Co-Founder and CEO of financial planning and retirement plan consulting firm intellicents.
Bradley K. Arends is the Co-Founder and Chief Executive Officer of intellicents and intellicents investment solutions. He has worked in the ERISA and investment areas for over 30 years, concentrating on the design, communication and funding of defined contribution plans, IRC Section 125 flexible benefits plans, defined contribution health insurance approaches, private health insurance exchanges, health savings accounts, and executive compensation programs.
