Employers Mutual Casualty Company

TOTAL PLAN ASSETS/PARTICIPANTS: $339 million/2,300 for the 401(k); $306 million/2,000 active participants for the cash-balance plan
PARTICIPATION RATE: 94.1% for the 401(k)
AVERAGE DEFERRAL RATE: 9.55% for the 401(k)
DEFAULT DEFERRAL RATE: 6%
EMPLOYER CONTRIBUTION: 100% on 4% match for 401(k); service credit of 3.25% – 13.5% for cash-balance plan

Employees at Employers Mutual Casualty Company (EMC) are on track to replace 74% of their income in retirement, based on their 401(k) savings and expected Social Security. With the insurer’s active cash balance plan also factored in, the company, which is headquartered in Des Moines, Iowa, projects that its retired employees will exceed 100% of their pre-retirement income.
 
The insurer centers its brand on the “Count on EMC” philosophy, says Elizabeth Nigut, senior vice president, human resources (HR). “We want to provide a feeling of stability for our agents and our policyholders, so they know that they can rely on us,” she says. “And we want to provide that same stability to our employees during their working careers.”
 
The Cash Balance Plan’s Role
The company switched from a traditional defined benefit (DB) plan to a cash balance plan in 2000. When asked why a cash balance plan approach makes better sense for the company, Nigut says, “It has allowed us to continue to offer a pension plan, given the liabilities associated with a traditional defined benefit plan, and to sustain our pension plan at a fully funded rate. It also is more aligned with our value of being good financial stewards of economic resources.”
 
From an employer’s perspective, Nigut says, the cash balance plan remains a fantastic tool in both recruiting and retention. “It is one of the ways we can differentiate ourselves from much of our competition for talent,” she says. “Folks see it as, ‘Wow, I’m working with a company that is investing in me for the long term.’” The employer makes an annual age-based contribution to employees’ cash balance accounts that ranges from 3.25% through 13.5% of their pay.
 
But maintaining a cash balance plan does have trade-offs. “When we’ve got a benefit like this, we have to be mindful of how we spend our dollars on other benefits and maybe pull back on [those or on] compensation,” Nigut says. “So we have to be thoughtful about how we market ourselves to younger individuals who are just entering the work force and who may not be as concerned about the retirement benefit as they are about the base pay.”
 
As to how the company explains its approach to younger job candidates, she will say, ‘Certainly, there’s a trade-off, but when an employer dedicates more money to base pay, that doesn’t mean employees’ take-home pay is as great [as it would be at EMC] if they need to set aside a substantial part of that money for their retirement savings.’
 
Boosting 401(k) Plan Design
Although they have a pension plan, EMC staff members—who have an average tenure of 12 years—realize they also need to save for their retirement, says Robert Seiler, benefits and wellness manager. “In the insurance business, we focus a lot on being stable and keeping risks to a minimum. Everybody here understands the importance of that,” he says. “They realize they’ve got to take some responsibility and not just rely on the pension plan. We have sold employees on the idea of a three-legged stool: Social Security, the cash balance plan and their 401(k) account.”
 
EMC implemented automatic enrollment for the 401(k) plan, which is recordkept by Prudential Retirement, in 2014. It enrolled new hires at a 6% deferral and included 1% automatic increases. Since implementing auto enrollment, participation has risen from 86% to 94.1%.
 
Effective January 1 of this year, the plan began using a safe-harbor design. That included changing the match to dollar-for-dollar up to 4%, a 1% increase from the previous match. The plan also moved to immediate match vesting, eliminating its required three-year wait to vest.
 
Additionally, the plan recently began annual re-enrollment of nonparticipants and low-saving participants into the 401(k). EMC had found that the latter group often stopped or decreased their deferral to deal with a temporary financial situation, then simply forgot to reset their contribution rate, says Aaron Segar, EMC benefits supervisor.
 
“Any employee who is below a 6% deferral—from zero up to 5%—we will automatically enroll at 6% and set that participant at 1% auto-escalation a year, up to a 75% limit,” Seiler says. Whereas the plan essentially has not set an auto-escalation ceiling, 75% is its deferral limit, he notes.
 
Regardless of the limit, Seiler says he would be happy to see participants reach at least a 15% annual contribution to their EMC retirement accounts. With the plan’s design, that will happen quickly, even for younger employees. If employees contribute 6% and get the 4% match, that puts them at 10% for the 401(k).
 
And service credits for the cash balance plan start at a minimum 3.25% annually, depending on the participant’s age. “So right away, even if you are in the youngest age bracket for the cash balance plan, between that and the 401(k), you can put away 13.25% a year,” Segar says.
 
Assessing Employees’ Educational Needs
The company took a fresh look at the educational needs of its employees last year when it surveyed them to get a better sense of their financial-knowledge gaps, Segar says. The survey asked questions based on a financial “hierarchy of needs” that includes budgeting and emergency savings on the first level, followed by credit card debt, retirement savings and plans for meeting insurance needs. To do the survey, EMC utilized interactive employee-communication software developed by The Jellyvision Lab Inc.
 
The brief quiz aimed to give EMC insight on what topics to include in its employee education, based on its workers’ real-life financial needs. “We were trying to find out what they want from us,” Segar says.
 
The survey revealed that very few EMC employees lacked basics such as a funded emergency-savings account. But they do want a better understanding of their individual retirement outlook. “They want to learn more about issues such as ‘How do I go from accumulating savings as an employee to starting to spend my savings when I retire?’” Segar says.
 
Pre-retirees as well as other EMC employees have access to free one-on-one meetings with Advanced Capital Group, the plan’s adviser, which sends representatives on-site monthly.
 
The employer also wants to better educate participants on how to utilize the tools available to help them with their retirement planning, such as Prudential’s retirement-income calculator. These tools help the employees grasp what they need to do to achieve a secure retirement—and to not just rely on the cash balance plan.
 
“We talk about the need to be aware of what your current retirement-savings status is,” Nigut says. “We want employees to understand, ‘Am I saving enough?’ It’s not something where we want to say, ‘Hey, we’re going to take care of you 100%.’ We tell our employees, ‘This [cash balance plan] will get you headed in the right direction.’” —Judy Ward