A Retirement Plan ‘Auto’ Reversal
An order, relation and meaningful purpose drive Joe Brummel’s process and metrics for helping 401k plan clients.
“The components are common within the industry—participation, deferral rates and things like that,” Brummel, managing director of Minnesota’s Twin Cities for mega-firm Strategic Retirement Partners (SRP). “But they’re customized to each plan sponsor. We have a list of roughly 25 different benchmarks, and a process by which we help identify each client’s specific values and goals.”
Some groups care more about certain metrics than others, but he mentions the average deferral rate as one good example.
“It’s not unique in the industry, but how we put it together is. You might have a plan with high participation, but you have to look at the average deferral rate because it adds a lot more insight.”
The match is another, and he and the SRP team look at how many eligible employees are getting the full match. He then goes further in what he calls the “evolutionary process” and examines the number of participants achieving at least a 10% deferral rate.
“What percentage of participants are achieving a total targeted contribution rate of at least 15%, which includes the match and sometimes profit sharing?” Brummel adds.
While good metrics and their application are important, Brummel suggests the solid and repeatable outcomes they have achieved across so many plans are not just from what they do, but how they do it.
“Providing education is not a differentiator; how you do it is. Everything we do has an order, relation and meaningful purpose to driving great outcomes for our clients. It’s sophisticated in design, yet profoundly simple for clients.”
Putting the process and metrics to use, he mentions a company he’s worked with for five years that initially had extremely high expectations. When they engaged SRP, there were 250 employees with a 78% participation rate and an average deferral rate of 4.81%.
“They’d been doing a lot of employee education before, so it wasn’t like we were coming in and presenting something new necessarily, but how we did it made a huge difference, because it’s a multiplier. We implemented our employee education curriculum, which gets people to move ahead by using the right kind of messaging and delivery for comprehension and motivation.”
Quarterly group employee education sessions, as well as voluntary one-one-one meetings, meant participation and deferral rates kept “inching up.”
“The company was growing fast, and about a year ago it had doubled in size,” Brummel explains. “They were up to 504 employees and finally agreed to auto-enrollment. They’d always resisted because they felt as though the employee should make an active election. Their attitude was, ‘We hire you to help us with employee education so they can make that active decision.’ We’d done an excellent job, and moved their participation rate up to 96.4% without auto-enrollment.”
Noting there were only 28 eligible employees out of that 504 not contributing to the plan, he says they implemented auto-enrolment with an auto-escalation feature. Out of those 28 employees, they enrolled and retained 25.
It meant 501 of 504 eligible employees were now contributing to the plan with an average deferral rate of 9.07%. While the vast majority was not due to auto-enrollment, he highlights the impact it had in “getting us over that last little hump.”
“A lot of other advisors do it in reverse,” Brummel concludes. “I’m not advocating this is the right order, but it’s a good way to illustrate the impact of employee education and meetings in the field. It resulted in better outcomes for the plan sponsor and participants, which were reflected in the numbers. It wasn’t like the typical auto-enrollment plan, where you get high participation and low deferral rates. We got high participation and high deferral rates.”
Joe Brummel, AIF®, C(k)P® is Managing Director, Twin Cities for Strategic Retirement Partners.
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.