DB to DC Series: Getting Employee Buy-In to 401(k)s
Jay Johnson, CFO of Los Alamos
National Laboratory
Jay Johnson, chief financial officer of Los Alamos National Laboratory, had some of the brightest minds in the world working at the lab. But they were still leaving $5 million on the table when it came to their 401(k) and the 6% match the organization was offering. Too few of them had signed up for the defined contribution plan.
When Johnson joined the group in 2013, he was determined to exhaust the matching money the lab offered. So, he set out to see just what it would take to get employees, including the more than 3,000 Ph.D.s, to increase participation in their 401(k)s.
“We were absolutely not going to give up until we got that number to zero,” Johnson said during an interview with CIO. His goal? “We want this to be one of the best places to work in the country.”
It wasn’t that the employees had no retirement savings. About half of the employees and scientists at the lab participate in a $4.8 billion defined benefit plan that closed in 2006 when the lab shifted from the University of California, which had operated it for 60 years, to becoming a for-profit called Los Alamos National Security LLC. The other half of employees are in what Johnson describes as a $1.4 billion defined contribution plan, meant to attract the world’s top scientists. “We believe we have to have good benefits for us to get the best scientists in the world; that’s part of our business plan as a national lab,” said Johnson.
In addition to the 6% match, the lab’s non-elective employer contribution starts at a healthy 3.5% (without any employee contribution), goes to 4.5% after 10 years, and 5.5% after 20 years. The 401(k) plan features are designed to provide a comfortable and secure retirement between the
How they the lab did it:
- Collaboration
Working with Mercer as the investment consultant, the team compared fees and learned what was possible. The lab then gained access to investment power and lower fees by teaming up with its sister lab, Lawrence Livermore National Laboratory, which has a $3.3 billion pension and $1.3 billion 401(k) plan. The two labs managed the pensions and the 401(k)s together in order to get enough leverage for deeper discounts. The pooling saves the Los Alamos lab more than $4 million annually by leveraging investment managers and service providers, along with centralized accounting and administration function.
It also reached out to larger parent companies operating within the lab to gain price matches.
The Los Alamos DC plan started with no funds in 2006. Over the years, it was able grow to $1.4 billion from employee and employer contribution, and market growth. As a result of the asset growth, the investment offerings changed from retail mutual funds to institutional funds, and finally, to a best-in-class, generic-labeled lineup focused on asset allocation. A few years ago, it decided to auto-enroll participants.
“Our expense ratios are so much lower than they were 10 years ago,” said Johnson. Target date fund allocations have increased to 55% from 25% of assets. More than 50% of funds have an expense ratio of 0.06% or lower.
- Analysis
The executives created a benefit and investment committee, made up of the finance organization, human resources, and employees to examine portfolio size and asset allocation. The group set out to talk with other employees at events to spur involvement on issues like asset allocation, and on how to increase their rate of savings.
The committee also interviewed asset management firms, and insisted on requiring each investment manager update them on strategy, performance, and staff. They came up with several actionable suggestions. For example, they discovered that employee inertia was the chief reason that people weren’t participating in the 401(k) plan. The employees knew very little about DC plans, and participating meant they had to take action. So the lab started auto-enrolling, and allowing employees to opt out.
- Education
In 2014, the lab offered its first Financial Fitness Boot Camp event. Along with asset allocation, the lab recognized the importance of overall financial wellness for its employees. During the Boot Camp event, the lab offered 30 different financial classes over the 40 square miles of laboratory with workshops and three-day training sessions, manned with about 100 energetic volunteers throughout the year. A second boot camp was held in 2016, and a third is scheduled for 2019.
About 5,000 out of the lab’s 10,000 employees attended. Communications were sent out explaining the power of saving and compounding, and just how much free money employees would get from the match.
Feedback from the employees has been positive. One participant said, “The Boot Camp program is fabulous. It is very impressive that my employer is interested in my financial soundness. I value my employment much more. Thanks!”
The company’s mantra resonated about wanting to be one of the best places to work in the country. Of those employees the committee talked to, 10% to 15% took action, with about a 4% increase on their 401(k) contributions.
As a result of the Los Alamos National Laboratory’s efforts, $3.5 million of the $5 million currently has been matched, the expense ratio is reduced by at least 80%, and the volunteers received a distinguished performance award from the lab director for their effort.
“By trying to keep that pressure on the cost I think people see what we’ve built as a very powerful tool for their financial success” said Johnson. “So we’re using every negotiating tactic we can.”
Related stories in series:
New Frontiers in Benefits: From Defined Benefits to Defined Contributions
How Robin Diamonte and UTC Incorporated Annuities