Rescuing Retirement

Amid employees' concerns and complaints, employers proceed with efforts to boost 401(k) participation.

Thursday, December 1, 2011
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Every year, Annette Grabow travels to about 40 different U.S. cities to help kick off retirement-related workshops for the 3,000 employees at Mortenson Construction, a Minneapolis-based company operating primarily in the United States with additional offices in Toronto and Shanghai, China.

To generate excitement, she did something unusual last year: She asked employees to dance.

The company's 2011 theme was Celebrate, marking the 50th anniversary of its profit-sharing contribution plan. Workshop participants were greeted with music and a video of people dancing on a screen. Grabow, manager of retirement benefits at Mortenson, then invited anyone brave enough to dance with her for just 30 seconds. In exchange, they received an iPod shuffle.

"I don't do disco, just shake this and that a little," says Grabow, adding that roughly five employees accepted her challenge. "It got [people in] the whole room laughing, hootin' and hollerin'. I always try to get [employees in] the workshops worked up."

In this upside-down economy, employees are definitely worked up. Some may have lost a second family income along with their home. Some may have maxed out credit cards or are helping extended family members pay bills. So the idea of saving for retirement -- which could be decades away -- seems almost ludicrous.

Still, employers have not surrendered. Despite liability concerns and employee complaints and procrastination, companies are bombarding workers with information and advice on radio programs and blogs, and through new online investment tools. The idea is to help them learn how to get into financial shape now so their retirement years can be just that -- years spent in retirement.

Education, First Line of Defense

Mortenson offers two 401(k) plans, one for employees in nonunion trades and the other for professionals and support staff. Grabow says current participation rates in the first group exceed 80 percent and soar to 96 percent in the latter.

Those numbers weren't reached by accident. Several years ago, Mortenson partnered with Financial Finesse, an El Segundo, Calif.-based company that provides financial education and counseling programs to businesses. Initially, the company created an online quiz for employees, asking them basic financial questions such as, "Do you have a savings account?" so Grabow could assess their financial IQ.

Overall, employees scored well but there were still education gaps in certain company locations. Grabow tweaked the seminar for each city, then introduced raffles, contests and giveaways -- anything fun to make the dry content more palatable.

At the end of each workshop, evaluations were distributed and participants were asked to list two financial goals. Financial Finesse collected the data and compiled it into a report that provided Grabow with "meaningful data," she says, such as "99 percent consider the training an important part of their benefits package."

Thirty days later, Financial Finesse then called participants, asking them if they had achieved either financial goal and sent them a free calculator if so. On average, 92 percent took at least one action, such as increasing their 401(k) contributions. "I think [employees] were trying to hold themselves accountable," Grabow says, adding that the annual workshops are optional except for new hires.

Employees in nonunion trades attend a mandatory Fiesta breakfast workshop each year that Grabow coordinates along with a team member. Because more than 50 percent are Hispanic, says Grabow, the event is conducted by a bilingual trainer. Different items, such as warm gloves, are raffled off. One year, a mariachi band performed. This year's topic focused on budgeting and credit-card debt because the number of employees withdrawing hardship money from their retirement accounts to pay for medical bills or mortgages has been climbing, she says. Grabow, who approves the hardship distributions, says they increased from 7 percent in 2009 to 9 percent in 2010.

Throughout the year, employees are also encouraged to use online tools developed by Wells Fargo, the company's record keeper, and to review plan information and finance articles on Mortenson's intranet.

"Basic workshops don't work over time," Grabow says, adding that financial education needs to be fun. Besides dancing at workshops, Mortenson also introduced a financial workshop for women using a Jeopardy! game format. "I have watched increasingly challenging education make a difference with our employees."

Some companies are introducing money coaches to the mix of tools to help employees manage daily issues, such as developing a household budget, or are starting to offer incentives for attending financial workshops, says Judith Cohart, president of the Personal Finance Employee Education Foundation in Washington.

Cohart points to Des Moines, Iowa-based Meredith Corp. and its program that gives employees $50 in well-bucks -- which can be used to purchase services such as pre-retirement financial counseling -- but only if they attend a six-hour Money Basics course.

On April 1, employers might be fighting another battle, one that could discourage employees from investing in retirement plans: The U.S. Department of Labor is requiring that all plan fees be disclosed to employees, such as the cost for record keeping, administration and investment advisers, by that date.

By the end of May, employees will start seeing these costs broken out, which could easily reach thousands of dollars a year, says Gerald Wernette, director of consulting services at Rehmann Retirement Builders in Farmington Hills, Mich.

More Liability, New Complaints

Will this transparency lead more employees to complain that the fees are too high? Perhaps.

"You're going to see just about every employer re-evaluate their plans," Wernette says. "[They'll say] 'Here's our plan, here's our fee. Is the value proposition connecting up?' "

In an effort to boost value-added services, some providers are offering investment-advice technology tools. Five years ago, Wernette says, Rehmann introduced Adviceware, 401(k) software that uses current market trends and other forward-looking processes to help reduce participant investment mistakes and employer liability. In 2011, it was certified by Dalbar Inc., a financial-services market-research firm, as meeting the requirements of the Pension Protection Act of 2006.

Despite such tools, employee complaints continue. More than a dozen class-action lawsuits have been filed in federal district courts -- with several cases being appealed in various circuit courts -- by employees complaining about high fees and poor plan performance, says Bruce Ashton, partner with the employee-benefits and executive-compensation-practice group at the Drinker Biddle & Reath law firm in Los Angeles.

"It's the responsibility of the fiduciary of the plan, the plan sponsor, to ensure the costs of the plan are reasonable," he says, adding that the outcomes of such cases have been a mixed bag for both employees and employers. For example, employees at John Deere lost their court battle while workers at Southern California Edison won their lawsuit. The utility had to put several million dollars into the plan for the benefit of participants, he says.

In the past, other liability concerns involved crossing over from information-giving to advice-giving. Plan sponsors did not want to be held responsible for losses in workers' retirement accounts based on investment advice offered either by them or by an investment firm they selected.

The Pension Protection Act made it easier for plan sponsors to offer advice and the Department of Labor has since provided a framework for hiring investment firms. If an employer prudently selects the adviser, Ashton says, it won't be responsible for the advice that is given.

In October, the DOL published a final regulation to improve access to investment advice. To protect participants from potential conflicts of interest, the regulation prevents advisers from recommending investment options if they receive additional fees from investment providers. The only exemption is if advice is offered through a computer model certified as unbiased by an independent expert or through an adviser whose compensation does not vary based on the types of investments employees select.

Likewise, there are two more safe harbors for plan sponsors: if participants don't make any investment decisions and their account is defaulted into a Qualified Default Investment Alternative, such as a balanced fund, or if the plan sponsor appoints an investment manager who is given discretion over plan investments.

"Under those approaches, the employer is entirely off the hook for the investment of participant accounts," Ashton says.

Still, he believes any liability concerns are misplaced because, on some level, plan sponsors already have the ultimate fiduciary responsibility for the plan's design and operation. He says employers may actually increase their liability if they don't provide assistance to participants, either in the form of education or advice.

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Game Changers

Not every employer is afraid to cross the advice line. Philip White believes employees at his company are "begging" for more help. White is a certified financial planner, chartered financial analyst and director of Racker Rewards (compensation and benefits) at Rackspace Hosting, a global company in San Antonio that specializes in hosting and cloud computing.

"It's not in our nature to [hang] people out to dry," he says, adding that the company introduced an optional 13-week course from the Dave Ramsey Financial Peace University two years ago. Employees paid for the workshop, but were reimbursed if they didn't miss more than one, two-hour weekly session.

Still, White wanted to do more. In addition to offering the standard 6-percent company 401(k) match, the company began working with several providers to pilot Rackwealth, a financial-wellness program that helps its 3,800 employees navigate the financial maze, both long- and short-term. Employees can access a variety of online tools, receive personal coaching, or attend online or on-site workshops -- some conducted by Financial Finesse -- that help them make better financial decisions.

"They want someone to talk to about what to do," says White, adding that the company's intranet radio station has presented several educational spots on company stock and equity programs and plans to offer a call-in show about personal finances.

At the beginning of the year, employees also completed online financial-wellness assessments created by GuideSpark, a Palo Alto, Calif.-based company that provides financial wellness and benefits education. The company is helping White build online training programs based on the results.

"Right now, we're still in a pilot [phase] and working through how this is going to work," White says, explaining that employees may pay for individual coaching sessions so they would "have some skin in the game."

Since Rackspace began introducing financial-wellness education, the employee-participation rate in its optional 401(k) plan jumped from 25 percent to about 70 percent.

White believes these initiatives will ultimately impact the company's bottom line in the form of increased employee retention and higher engagement scores.

Regardless of how much financial education employers deliver, however, employees must be engaged; otherwise, even the best programs will fail.

J.B. Hunt Transport Services Inc., based in Lowell, Ark., trains its nearly 16,000 U.S. employees to be receptive to financial education and advice right from the start.

As many companies do, all J.B. Hunt employees go through an onboarding process encouraging them to sign up for a 401(k), says Mark Greenway, the company's senior vice president of human resources. In addition, they have a choice of investing on their own or enrolling into Advice Access, an eight-year-old online program developed by Bank of America Merrill Lynch that provides them with investment advice based on a variety of factors such as age, income and other account balances. The program is also linked to Merrill Lynch's managed-account program that makes suggested allocations, implements them on a one-time basis or re-balances assets every quarter based on changes in the market and the employee's lifestyle.

"At the end of June 2011, 27 percent of our people were using Advice Access," he says, adding that those not using the tool still receive mailers throughout the year with targeted financial messages such as the importance of diversification. "Our participation in the 401(k) plan has gone up probably from around 53 percent [in 2010] to 67 percent."

J.B. Hunt's HR department also uses a new Merrill Lynch tool -- Financial Wellness Monitor -- that reviews the plan's attributes, such as account balances and asset allocations, in three areas: early savers (employees under 30 years of age), peak savers (those between 30 and 49) and those in pre-retirement (employees over 50). White looks at each group individually to evaluate their financial wellness.

"We knew employees in Advice Access were doing better than those not in [it]," he says, adding that 92 percent of those who are in the program have acceptable financial-wellness scores compared to 29 percent who aren't. "That's why we spent the time and energy last October to build it into the onboarding portal and make it the default option."

Likewise, the company offers a 6-percent contribution match, supports an HR solutions center addressing employees' questions about their 401(k)s and posts articles in a blog format on its 401(k) portal.

"There is plenty of information out there ... ," says White. "Thirty-three percent [of J.B. Hunt's employees] are leaving money on the table, not participating or saving for their future. My goal is to present the opportunity and educate people around the choices and options they have, and help them have information to make good decisions."

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