New Tactics to Boost 401(k) Interest

For Barbara Green, director of retirement programs at Trinity Health, it had become increasingly clear that her workforce was in the dark about saving for retirement. As of 2002, less than half of the nearly 44,000 employees at the Novi, Michigan-based health-care system were enrolled in the defined-contribution plan. And most employees waited until they were 55-years-old before they inquired about retirement savings.

    Green knew that her organization needed a wake-up call. In 2002, Trinity launched a retirement-education campaign encompassing one-on-one counseling, group seminars, online tools, videos and access to a financial adviser. To generate buzz about a topic that most employees put on the back burner, the organization crafted creative marketing themes and offered special giveaways. This year’s campaign has a movie-theater theme; employees get a movie card stamped by doing such things as enrolling in the retirement-savings plan or reviewing their investment strategy with a financial representative. If they earn three stamps, they win Blockbuster coupons or movie tickets. The campaign has made a difference. In two years, participation in the nonprofit’s 403(b) plan grew from 45 percent to 59 percent, a 31 percent increase.

    Numerous studies show that most Americans have no clue about preparing for retirement. They underestimate how much money they will need and how long it will have to last. As the burden of saving for retirement has steadily shifted to the individual–with defined-contribution plans increasing in number and defined-benefit plans decreasing–employers like Trinity have stepped up their efforts to educate employees about retirement. If employees aren’t prepared, the retirement-savings crisis will affect millions. In the next two decades, the number of Americans over age 65 will swell from 36 million to 62 million, representing 20 percent of the population.

    “Many think retirement is a given. It’s not a given anymore,” Green says. “People really don’t understand how different our retirement is going to be from our parents’ retirement. We may or may not have health care or a defined-benefit plan, and we’re putting kids through college, taking care of elderly parents. Frankly, I have not even heard of anybody who has saved enough.”

    Most people haven’t saved nearly enough. One-third of workers believe they may outlive their retirement savings, according to a recent survey by the Employee Benefit Research Institute, American Savings Education Council and Mathew Greenwald & Associates. Among individuals who make less than $25,000, the concern is even greater. More than half believe they risk outliving their savings. Almost one-third of both pre-retirees and retirees have saved less than $50,000, and 12 percent of retirees and 17 percent of pre-retirees have saved between $50,000 and $99,000.

    When saving for the future, many individuals mistakenly think in terms of what they’re earning today, says Dallas Salisbury, CEO and president of the Employee Benefit Research Institute. They fail to consider how their lifestyle might change, how inflation and health-care expenses will eat away at their savings, and how long they’ll live. “Most people don’t plan for retirement,” Salisbury says. “The extent of their planning is–I plan to retire one day. People spend more time planning a vacation than planning for retirement.” People also make decisions based on how old their parents were when they died. Today, a 65-year-old man has a 50 percent chance of living beyond 85. So if a man retires at 65 and has saved enough money for 20 years, he has a 50 percent chance of outliving his money.

    Until now, retirement education has centered mostly on investing in 401(k) plans, says C. Robert Henrikson, president of U.S. Insurance and Financial Services businesses of MetLife Inc., based in New York. Employees today are so focused on growing a large portfolio that few know the true value of their nest egg. “Very little has been spent on educating people on how they then turn that bag of cash into income,” he says. “The emphasis [in education] has to move to more of a focus on living in retirement.”

    Employers are starting to move the emphasis in that direction, but many still face the challenge of motivating employees to set foot in a retirement seminar or to enroll in the 401(k) plan. Fuji Photo Film USA, based in Valhalla, New York, launched a campaign two years ago to prompt its younger employees to start saving for retirement by mailing out silver camera-shaped cards to 4,600 employees that said: “Think ‘point-and-click’ was easy? Try 401(k).” Employees who returned the detachable postcard were entered in a raffle to win a camera. As a result, 36 percent of respondents enrolled at an average deferral rate of 4.9 percent; 17 percent of respondents were already in the plan, and they increased their deferral rate to an average of 9.3 percent. “It’s more difficult to get younger people to consider long-term savings,” says Carl Gold, vice president of benefits.

    To encourage employees to sign up for its 401(k) plan, the Seattle-based Starbucks Coffee Co., which has more than 75,000 employees, at an average age of 28, started a program called Futureroast.com. The Web site features four interactive computer games that demonstrate key investment concepts, says Jo Clark, manager of the savings program. In the Voyager game, employees learn about the concept of a company match. Players maneuver a ship and try to bring on as much cargo as possible. Along the way, players encounter enticing purchases like CDs and movie tickets, and they have to choose between buying them or saving their cargo. The longer they stay in the game, the greater the match. Since Futureroast.com started last June, participation in the 401(k) plan has grown from 18 percent to 22 percent–a 23 percent increase.

    A growing number of employers are turning to other Internet tools to educate their employees about saving. The last five years has seen the development of a mini-industry of tech companies that sell Web-based software programs offering investment advice by independent third parties. Employers typically pay a fee to use the programs based on their number of employees.

    The newly launched Boston-based LTSave offers a program that has individuals enter their 401(k) balance and other savings, and answer questions about their risk tolerance and retirement goals. It then shows them how much retirement income they’ll generate and how that compares to their goal. The program offers advice on how to reach their goal, as well as quarterly e-mail reminders to re-evaluate their investment strategy. “Once most employees enroll in their 401(k) plan, they never change their asset allocation,” says Sunil Bhatia, CEO of LTSave. And because of changes in the market, “over time, they don’t get the benefit of really compounding, which is a powerful force.” Employees can do the program on their own or with an adviser over the phone, or have LTSave manage their portfolio.

    The Hartford Financial Services Group, an investment and insurance company based in Hartford, Connecticut, is considering adopting an online tool, but prefers a more personal approach, says Karen Macke, senior vice president of compensation and benefits. Last September, it began offering its 30,000 employees advice from certified financial planners through a toll-free number. When employees are three years from retirement, they attend a three-day workshop that covers health benefits, retirement savings, Social Security benefits and other retirement issues. Employees can invite their spouses, adult children or their own financial planners to attend.

    Employers are also starting to go beyond the basics of retirement education. In response to hearing that employees needed help in learning how to turn their nest eggs into monthly retirement income, 401(k) provider Principal Financial recently developed a series of workbooks. The materials were sent out to 18,000 plan participants across several hundred companies. “People look at their assets and think, ‘Wow, that’s a lot of money.’ But when they look at it as income and realize it has to last 25 to 30 years, it’s a shock how small it is,” says Julie Leclere, director of retirement and investor services at Principal Financial. Principal’s tools include a workbook for employees 10 years away from retirement that allows them to plug in their savings, come up with an income goal for retirement, and then see how far they are from reaching that goal, with solutions on how to plug the gap.

    Studies have shown, though, that even among the best companies, employees often don’t take advantage of the education that’s provided, Salisbury says. “Are employers offering more education? Yes. Are individuals using it at higher rates? No,” he says.

    Trinity Health has tried to overcome that challenge by creating a sense of urgency with its marketing messages and offering education through every possible medium. Starting in September, Trinity will offer five one-hour seminars held either during lunch, on weekends or at night. “All employees walk out of their first seminar with the same comment: ‘Wow, I wish I could have come to this program when I was 30,’ ” Green says. “We want to make sure our employees are ready for retirement, knowing that the company cannot do it all for them anymore.”

Workforce Management, July 2004, pp. 57-58 — Subscribe Now!