Corporate 401(k) >$50MM - $100MM
Visible Changes Inc.
TOTAL PLAN ASSETS/PARTICIPANTS: $60 million/733
PARTICIPATION RATE: 92%
AVERAGE DEFERRAL RATE: 4.72%
DEFAULT DEFERRAL RATE: 2%, increasing by 1% annually up to 4%
EMPLOYER CONTRIBUTION: 100% up to 4% of pay, plus profit-sharing contribution
Hair salons have a unique set of challenges when it comes to preparing their employees for retirement. One of the biggest is to work with the contrasting business models of full-time vs. self-employed stylists. While some salons—such as Visible Changes Inc., a group of 16 shops in Texas’ largest cities—employ only full-time workers, others let independent stylists rent booths within a salon.
Couple this with a high industry turnover rate, plus the temptation to spend cash tips, and the importance of educating employees about saving for the future becomes clear, says Nathan Sharp, director of investments and research at InTrust Fiduciary Group, Visible Changes’ adviser. That explains why the salon chain makes sure it has employees covered through a strong communications strategy and smart plan design.
“As plan sponsor, we really try to educate the employee on the importance of saving and fiscal responsibility,” says Visible Changes President Johnny McCormack.
Because the salons are located in shopping malls—main offices are in Houston—Sharp says it is especially important to educate employees about resisting the urge to spend tips on nearby retail purchases.
Visible Changes offers online and in-person financial advice from recordkeeper Charles Schwab, as well as educational seminars during the salons’ retirement readiness week, each August. In addition, Schwab makes sure projected income replacement numbers are top of mind by listing them on quarterly statements and on the home page employees see when logging into their retirement accounts.
Because stylists are always on the go, mobile communication has been very effective in keeping the Visible Changes staff in the loop about their plan, according to Sharp. The company posts Schwab’s group meeting schedule on the salons’ internal Facebook page, for example.
But nothing can beat in-person communication. Visible Changes’ managers are great about spreading the word and encouraging employees to sign up for advice appointments, Sharp says. And more tenured employees serve as savings mentors for the younger crowd. “They are our biggest advocates, and we lean on them a lot to tell the younger stylists [about saving],” he says.
Plan design has also helped with retirement readiness outcomes. When InTrust first started working with Visible Changes, in 2012, the company had a trustee-directed profit-sharing plan and a separate, small 401(k) account in which only a sliver of employees participated, Sharp says. So the adviser and client merged the two plans to create a participant-directed plan with a company match of up to 4%. They also added features including automatic enrollment and escalation, with a default deferral rate of 2%, which increases 1% each year up to 4%. The current employee deferral rate is approximately 4.7%.
“These changes have absolutely helped people save more,” Sharp says, adding that most employees are saving as a result of auto-enrollment. The current participation rate is 92%.
Today, 89% of participants are “on track” or “almost on track” for retirement. Schwab’s My Retirement Progress—a personalized progress-snapshot-tool—aims for 80% income replacement in retirement.
“Their whole company is really built around financial independence,” Sharp says. “That’s what they really believe in.” —Corie Hengst