Mental Health Cooperative, Inc.

HEADQUARTERS: Nashville, Tennessee

TOTAL PLAN ASSETS/PARTICIPANTS: $14,077,686/495

PARTICIPATION RATE: 93%

AVERAGE DEFERRAL RATE: 6.8%

DEFAULT DEFERRAL RATE: 6%

DEFAULT INVESTMENT: Passive TDFs (TIAA indexed-based)

EMPLOYER CONTRIBUTION: 35% of 6% of deferrals, nonelective 3% of the first $45,000 of pay, 6% of pay over $45,000

ADDITIONAL PLAN: 457(b) for highly compensated employee

Nonprofit Mental Health Cooperative Inc., headquartered in Nashville, Tennessee, has substantial employee turnover. Yet, company executives believe, whether an employee is with the company 10 months or 10 years, there is no reason not to educate him about the importance of saving for retirement and get him into the plan.

Kimber Dills is vice president of human resources (HR) at the agency, which was founded in 1993 to provide full-service behavioral health care for children, adolescents and adults through intensive care management, and psychiatric and counseling services. She describes the plan as rich and an excellent recruiting tool for all employees, from drivers up to psychiatrists, and notes it has just shy of 500 participants.  

Dills gets special accolades for the education provided. “Many employees are new graduates and don’t know anything about saving for retirement. They come out of our education meetings, saying, ‘Thank you,’” she notes. 

Education is a key initiative at the Mental Health Cooperative. The plan’s adviser, James Lyday, managing director at Ridge Retirement Consultants Inc. in Franklin, Tennessee, and Lori Williams, relationship executive at the plan’s recordkeeper, OneAmerica in Brentwood, Tennessee, take turns every month presenting at the enrollment meeting for the cooperative’s new hires. They discuss saving 15% to 20% of salary and how a savings of $1 million is not enough. “For a 25-year-old, 40 years from now that will be only 60% of what he needs,” Lyday says.  

Every July, Lyday sends employees a statement containing a personal goal to save more than $1.7 million and showing how easy it is to get there; he says the $1.7 million is based on the example of a 30-year-old who makes $30,000 and has yet to start saving. This expectation is also presented at the monthly new-hire orientation, and feedback from employees shows right away the message is resonating, Lyday says. 

In addition, Williams makes annual trips to each worksite and presents an education campaign. At the different stops, she reviews how employees have progressed in their saving, as well as where they need to be and what steps they need to take. OneAmerica hosted a “Mock Retirement” program, part of its broader “One Day Is Today” program, having participants practice living on what they have saved so far. 

Lyday says the agency’s Mock Retirement includes a guide and online resources from the book “Mock Retirement” by Pete the Planner, with whom OneAmerica has a partnership. The program helps participants walk through a step-by-step process as though actually retiring. It shows them how to create a budget—identifying expenses and revenue—then attempt to live on 85% of that revenue for three months. “This way, participants can begin to understand the actual amounts of income and expense they will have and can work toward making sure they’ve accounted for what they are going to need,” he says. 

Managing Expectations

Besides presenting the reality of how much retirement savings will be needed for financial security in retirement, Mental Health Cooperative uses an innovative approach to measuring retirement readiness. 

According to Dills, during an annual, mandatory retirement readiness meeting, Lyday provides each employee with an updated personal “retirement readiness” statement that factors in a reduced expectation of Social Security. “We have a lot of younger participants, and we don’t want them to expect what may not be there,” Dills says. Currently, 37% of the plan’s participants are on track for 85% income replacement in retirement, including with Social Security reduced.  

When normal, expected Social Security benefits are part of the calculation, nearly 60% are on track. If the income replacement goal were 70% without Social Security, north of 70% of participants would be retirement ready, Lyday says. 

Millennials “get it” that Social Security has an iffy future, he says. “I tell them, if they want to replace 90% of income [including] Social Security, let’s get you to 85% without Social Security.” 

Plan Design Overhaul

Reinforcing the participant-education initiatives, Mental Health Cooperative overhauled its plan over the last three years to help members reach retirement readiness goals.  

In 2014, the agency searched for plan providers to replace its incumbent, which was giving inadequate service. Despite a number of starts and restarts, the provider failed to improve, Dills says. In April that year, the agency made a decision to move to OneAmerica, and the conversion was complete that July. The change resulted in a nearly 50% cost savings, to participants, in the plan’s investment options.  

Prior to the provider change, Mental Health Cooperative implemented automatic enrollment at 6% of salary for new hires. It also did a re-enrollment of nonparticipants and of participants deferring less than 6% of salary. The agency stretched its match formula from 50% of 4% of deferrals to 35% of 6%. 

The 403(b) plan had been a safe harbor plan, with a nonelective contribution of 3% on the first $45,000 of pay and 6% on pay over $45,000. The agency decided to keep contributing these amounts. These are called a “gift,” in enrollment meetings. Lyday observes that, because many employees are new graduates, an excellent way to teach them the importance of retirement saving is to give them such a gift to get started.  

“The generous company match and nonelective contributions motivate employees to do more,” Dills agrees. 

Mental Health Cooperative also implemented automatic deferral escalation of 1% a year, up to 15%, when it added auto-enrollment. All participants were defaulted into auto-escalation, effective July 2014, to coincide with a salary increase. Since then, the agency has seen a change from 70% participation and 2% average deferrals to 93% participation and 6.8% average dferrals. 

As part of the move to OneAmerica, a Roth deferral option was added, and the qualified default investment alternative (QDIA) was changed to the TIAA-CREF (TIAA-CREF has since changed its name to TIAA) index-based passive target-date fund (TDF) series. 

The 403(b) plan also offers custom target-date funds, created from the plan’s investment menu, which offer more active management. Williams says those are One Passport portfolios, which provide 3(38) protection through Mesirow Financial. Nearly 90% of participants are invested in either passive or active target-date funds. 

“The thing that’s neat to see is we are clearly impacting this plan,” Lyday says. He adds that the plan is also having a significant effect on other plans. He sends other clients to Dills for ideas or to answer questions. “I can advocate to plan sponsors and turn them over to Kimber to show how [Mental Health Cooperative’s plan] made an impact, making other employers think about making the same changes,” he says.

—Rebecca Moore