Kudos are in order for the manufacturing sector, which has arrived at a comfortable point of greater reliance on defined contribution retirement plans in the face of freezing, terminating or substantially changing traditional defined benefit plans.
As a result of this pragmatic approach, manufacturers are now ahead of the curve compared with other employers on hot-button issues such as the use of “automatic” enrollment. But the bar has been raised even higher since passage of the Pension Protection Act of 2006 (PPA) which presents opportunities with regard to plan structure and communications.
In Diversified Investment Advisors’ recent Report On Retirement Plans, 39 percent of manufacturing firms considered adopting automatic enrollment versus 21 percent in other industries, while interest is also running high in other auto features such as deferral increases (39 percent) and rebalancing (43 percent). The research also shows manufacturing firms are more bullish about the impact of retirement plans on recruitment and retention compared to the rest of Corporate America: 95 percent and 93 percent for these respective areas compared with 89 percent apiece for all industries.
Emergence of Plan Design Benchmarks
Given the growing level of sophistication among manufacturing plan sponsors, there’s an increasing need to benchmark progress against an emerging gold standard to ensure a competitive benefits package. Key elements include at least a 50 percent match on the first 6 percent of salary deferrals and a competitive array of investments, typically offering 11-20 funds.
Other secrets to success hinge on whether communication campaigns are easily understood and can be customized. And if a traditional pension plan is offered, it’s currently considered a huge advantage, and therefore should be vigorously promoted. For automatic features, it’s imperative that manufacturers help participants avoid a set-it-and-forget-it mentality by demonstrating how savings are growing over time through visible communications.
With the nation’s negative savings rate at its lowest point since the Great Depression, the average line worker needs to save more for the future. There are psychological barriers to saving as seen in employee procrastination, inertia and the desire for instant gratification.
But the PPA can help reverse this tide. It offers a safe-harbor protection to employers who comply with certain automatic enrollment provisions, for example a 3 percent minimum deferral rate and a gradual increase in the deferral to a maximum of 10 percent, and matching contributions up to a certain percentage or a non-elective contribution of at least 3 percent. The new law also clarifies age-discrimination issues that long clouded the adoption of cash-balance plans.
Partnering with Retirement Plan Providers
While larger retirement plan sponsors generally enjoy bigger budgets and more advanced technology for participant education, plan sponsors should partner with providers to offer a more meaningful level of service that includes developing and implementing comprehensive communications strategies. Enhancing plan commun- ications can lead directly to better retirement savings outcomes and improved plan appreciation among employees.
For a copy of Diversified’s Report on Retirement Plans, send an e-mail to WhiteL@divinvest.com.
Laura White is vice president of marketing for Diversified Investment Advisors, Inc., a national investment advisory firm specializing in retirement plans. Headquartered in Purchase, N.Y., the company helps more than 1.3 million retirement plan participants save and invest wisely to and through retirement. To learn more, visit www.divinvest.com