How to Take a 401k Plan From ‘Good to Great’
By now it’s cliché to mention Good to Great, Jim Collins 2001 business best-seller, when discussing how a firm gets to the proverbial next level, but what about retirement plans—and more specifically, sponsors and advisors?
It’s something with which Dan Peluse recently wrestled. He had to find a way to move the needle for a plan sponsor who, by all accounts, was already doing well but could nonetheless do much better.
“They worked directly with the plan provider in the past, and historically were a very generous plan sponsor,” Peluse, director of retirement plan services with Chicago-based Wintrust Wealth Management, notes. “The first step was to find a plan advisor to help them with communication and education, and then examine their plan design to see what other improvements we could make.”
What he initially saw was a 77 percent participation and an average savings rate around 6 percent, which he attributes to a dollar-for-dollar match.
Without a doubt, they were a very generous plan sponsor, but they had a gap in retirement readiness, with an income replacement rate of 75 percent.
“With many plans, it’s about getting folks engaged and saving the proper amount. With this group, it was trying to take it to the next level and say, ‘How do we make sure our folks are appropriately prepared to replace their income in retirement.’ Part of our initiative was to look for a plan provider that could help move those needles alongside with us.”
Of course, that meant leveraging the plan design and the recordkeeping systems to drive results.
“They had never utilized re-enrollment—they just had a fairly high level of engagement. We instituted a re-enrollment strategy for everyone in the plan, starting them at 6 percent and then implementing an auto-escalation feature of 1 percent a year up to a cap of 50 percent. It seemed a little odd, but a participant would have to be there for 44 years to get to that point.”
Results
The result, as one might expect, has been “wildly successful.”
The company has a 98.5 percent participation rate currently, with a re-enrollment each year of 6 percent to ensure they take advantage of the full match. Auto-escalation has taken place for four years in a row, getting to 10 percent this year.
“So, the average savings rate now among the participants has gone from 6 percent to just shy of 10 percent. The total contribution given the match means they’re just short of 15.5 percent in terms of what they’re yielding with the company contribution alongside their contribution.”
But what Peluse finds most important is their readiness score, which increased from 75 percent when he first engaged with them to 95 percent today.
“If we’re doing all these wonderful things on the plan side, we don’t necessarily need to talk 401(k) or why they should save more, since we’re utilizing auto features to help a lot of folks do that. We’re now spending time on helping them understand Social Security, and this year we rolled out an HSA as part of the platform for them. It’s now about bringing in all this other great stuff.”
Daniel J. Peluse, AIF, C(K)P, CBFA, CRPS is director of retirement plan services with Chicago-based Wintrust Wealth Management.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
