Corporate 401(k) <$10MM
Thomas Automotive Family
TOTAL PLAN ASSETS/PARTICIPANTS: $8.1 million/191
PARTICIPATION RATE: 87%
AVERAGE DEFERRAL RATE: 6.5%
DEFAULT DEFERRAL RATE: 4%
EMPLOYER CONTRIBUTION: 25% on 6%
Many lower-paid employees at Thomas Automotive Family, the owner of five auto dealerships, with headquarters in Bedford, Pennsylvania, used to save little or nothing in the 401(k) plan.
“We had many employees who didn’t contribute, or who would go in at 1% or 2% and then never change their contribution,” recalls Human Resources (HR) Director Peggy Zembower of Thomas Automotive Family, the owner of five auto dealerships headquartered in Bedford, Pennsylvania. “But I know that to retire at the standard of living you’re used to, you have to be at a lot higher than 1% or 2% savings.”
Zembower realized the implications for employees’ retirement outlook. “If we have a 70-year-old employee or even 80-year-old employee who is still working here because he wants to, great,” she says. “But if that employee is still working here because he isn’t able to retire, then shame on us, plain and simple.”
The savings dilemma for this plan sponsor also had impacted the plan’s nondiscrimination testing. “We had [highly compensated] employees who wanted to max out their 401(k) contribution, but we had many other employees who were either not participating or participating at very low levels,” Zembower says. “So then we would fail nondiscrimination testing and have to refund some contributions” to employees seeking to maximize their deferrals.
That changed when the 401(k) plan implemented automatic enrollment in 2014, utilizing a 4% initial deferral and 1% automatic escalation up to a 15% ceiling. The employer matches 25% up to 6% of pay, which the plan increased in 2014 from 25% up to 4%.
Now, the $8.1 million plan has 191 participants and an 87% participation rate, with an average deferral of 6.5%. In 2015, the plan passed testing for the first time.
In 2013, Thomas Automotive officials talked with the plan’s adviser, L.R. Webber Associates Inc., about the participation and testing issues. Then Thomas Muldoon, L.R. Webber’s director of retirement services, brought up the possibility of implementing auto-enrollment.
Thomas Automotive CEO Mark Thomas had not heard of auto-enrollment before, but he liked the sound of it when he did. “We weren’t really tuned in to what the trends were,” he recalls. “But the more we looked into it, the more it made sense.”
A personalized education approach also helps encourage Thomas Automotive employees to save more. The plan’s 1% auto-escalation takes effect every April 1, so in March, L.R. Webber does group meetings. “We go to all five locations, and we get there at 7:30 in the morning, before any customers come in,” Thomas Muldoon, Webber’s director of retirement services says. L.R. Webber has developed and distributes personalized “Report (k)ards, to each employee, grading him from A to F on both his deferral rate and investment diversification.
In addition to the group meetings, about once a quarter Zembower and Muldoon do a walkaround at the company's locations, talking informally with individual employees about their retirement savings. Sometimes employees say they feel like they are unable to save more, Zembower says. "So right then I say, "Let's just see what that 1% more is going to mean for your paycheck.'" At the employee's workstation, she helps the person access his or her account information along with a calculator tool from the plan's recordkeeper, MassMutual Financial Group.
Three years into the auto-enroll program, many participants have improved their retirement outlook. Currently, 73% are on track to retire at age 67 with at least 75% of their pre-retirement income, Muldoon says. The plan’s 87% participation rate benchmarks against a 67% average among automotive dealerships of similar plan size, he says. The 6.5% average deferral percentage also benchmarks as 23% higher than the average for peer plans. —Judy Ward