Sumitomo Machinery Corp. of America

“Most of them say, ‘Wow, I didn’t know I was going to have that much.’ But sometimes they’re behind on their retirement savings.”

Employees at Sumitomo Machinery Corp. of America, headquartered in Chesapeake, Virginia, are among the dwindling ranks of Americans who still have all legs of the three-legged stool: a defined benefit (DB) plan, a defined contribution (DC) plan and Social Security.

They also get individualized help to put together a personal financial plan from Sumitomo’s adviser Capitol Securities Management Inc. More than half of the company’s employees have gone through the process, says William Stade, managing director of the advisory firm, in Reston, Virginia. “Sumitomo is one of the few companies that allows us to come in, on company time, and sit down with its employees individually,” he says. “Sumitomo has personalized the financial planning process for each employee. So they all can have their own financial plan, based on their unique situation.”

Long-term employees wanted

Sumitomo has a couple of strategic reasons for keeping its fully funded DB plan active: recruiting and retention. “In our [machinery manufacturing] industry, it definitely helps us to attract the kind of employees we want,” says the company’s president and CEO, James Solomon. “And we want to have many long-term employees at this company. Having the pension plan is definitely a differentiator for us. Even though it costs more than a typical DC-style retirement benefit, we feel it’s important to support our employees, because we’ve got so many who are long-tenured. We want them to know that, when they retire, they’ll retire with a healthy financial situation.”

Employees start participating in the pension plan on the January 1 after they’ve completed six months of service. They reach full vesting in the plan after five years of service. “Our pension plan is designed to replace 1% of pay for each year of service, up to a maximum of 25 years,” explains Senior Director, Human Resources (HR), Michael Lulofs. Between the pension plan and 401(k), he adds, “we like to see people be able to replace at least 70% of their income in retirement.”

The 401(k) serves its own strategic purpose. Sumitomo aims for the pension plan to provide retired employees with a foundational benefit but not to replace their pre-retirement income completely. “The 401(k) is a good way to supplement that,” Lulofs says. “When you have a pension plan, there’s always the risk that your employee base will say, ‘Well, I don’t have to worry about my retirement, because my employer has me covered.’ The 401(k) enables our employees to have a well-rounded financial plan.” Employees become fully vested in the 401(k) after five years of service.

To help boost participation and deferrals, in 2018, Sumitomo started doing an annual 401(k) re-enrollment. “We do a ‘sweep’ in April of each year, for every eligible employee who isn’t participating or whose contribution is below 6%,” Lulofs says. “The timing of April is intentional, because that’s when employees get their annual pay increase, so they don’t feel it as much.”

In the three sweeps so far, a total of 132 re-enrolled employees have stuck with the 6% default deferral, out of 419 current participants. Even after this April’s sweep, 63 participants who got re-enrolled remained at that 6% level. Sumitomo sets the match at 50% of 6%, so the 6% deferral gets employees maximizing the match immediately, Lulofs says. 

Recordkeeper Principal Financial Group’s Retirement Wellness Score finds that about 60% of participants in the 401(k) are now on track to replace 70% or more of their income when they retire. To help encourage more participation and higher deferrals, Principal comes on-site to do group meetings and offers online tools.

A personalized education approach

Sumitomo also pays for employees to meet, free of charge, with one of Capital Securities’ Certified Financial Planners (CFPs) to develop their personal financial plan. “We’ve got such a mix of employees here, from those in entry-level jobs to highly skilled engineering positions. We have young people on our staff and people close to retirement—and they all have different financial situations,” Solomon says. “We know how expensive it is for someone to have a plan like this done outside the company by a financial planner.” And, for Sumitomo, he adds, “We know that anytime you’ve got employees who have financial struggles, that affects their work negatively in some way.”

The employee meetings are temporarily being done virtually, Stade says, but Capitol Securities typically does them on-site. “We are at each location for a full day, every six months,” he says. “Where the in-depth financial planning comes into play often is with the employees over age 55. That’s when it gets really critical to not make a mistake.” Pre-retirees often meet twice a year with the advisory firm, he adds.

At these meetings, Capitol Securities gives employees a projection of what they’re on track to receive in retirement income from their DB plan, 401(k) and Social Security, based on the person working until his Social Security full retirement age. “We tell them, ‘This is where your trajectory is, for the income you’re going to get in retirement,” he says. “Most of them say, ‘Wow, I didn’t know I was going to have that much.’ But sometimes they’re behind on their retirement savings: Maybe they joined Sumitomo later in their career and didn’t start saving until they were in their 40s.” After the adviser leads them through the process, employees commonly take action to increase their deferral, adjust their asset allocation toward growth equities—if they’re not invested in one of the plan’s target-date funds (TDFs)—or decide to work a year or two longer before retiring, he adds.

In keeping with its individualized approach to employee education, Sumitomo also added access to the FinFit holistic financial wellness platform, in January. An employee using FinFit initially completes an assessment with approximately 15 questions about his financial condition and then gets directed to FinFit tools and coaching most pertinent to his needs. So far, Lulofs says, the platform topics that Sumitomo employees most frequently select have been building emergency savings; considering home ownership; applying for a mortgage and making mortgage modifications; deciding when to collect Social Security; and obtaining credit scores and reports.

Twenty percent of Sumitomo employees have registered to use the FinFit program so far, Lulofs says, noting that he expects the program to have fairly broad appeal. “Financial stability and the peace of mind that comes with that is something I think all employees strive to attain,” he says. “We feel this is another tool we can provide to our staff to help them realize that goal.” —Judy Ward