Life Lessons From A 401k Plan Roll Out

This summer, Aptus provided education, counseling and enrollment assistance for a new 401k plan with around 2,000 eligible employees across several states. It was a truly rewarding and fulfilling experience. Participation in the plan increased more than 30% and savings rates improved meaningfully as well. We were excited to see the positive impact on the plan, but we were most surprised by the lessons learned along the way. We discovered new ways to think about courage, skepticism, trust, shame, leadership, culture, empathy and life.

We spent the first week meeting with people at the company’s manufacturing facility. It was an emotional week and we felt like we changed some people’s lives by encouraging them to save into the plan. We had several people who began saving money for the first time in their lives, even though the money they will be setting aside will cut into the bone of their budget. There’s no easy way to save money when you’re working full-time for something close to minimum wage. Often those minimum-wage employees were already working a second full-time job just to make ends meet. It was a brave leap of faith for them to begin contributing to their 401k plan and several of them broke down in tears—from a mixture of fear, pride and hope—when they signed their forms.

We talked to a single father who was raising four children on his full-time minimum wage paycheck, supplemented by weekend odd jobs as a laborer. He was already saving 11% of his pay into the 401k, which we viewed as a heroic effort. We helped him get into lower-fee, risk-appropriate investment choices. Most importantly, though, we told him how he could save $750 per year on his taxes by taking advantage of the Retirement Savings Contributions Credit (Saver’s Credit). He plans to file amended returns to get a much-needed refund of thousands of dollars.   

In that first week, we also heard another incredible savings success story. One of the supervisors at the manufacturing facility had the 5th highest 401k balance in this entire multi-state company. We asked him how he did it. He said he’d never saved a dime until about 12 years ago. At the time, his father had some health issues and was forced to retire even though he had no savings. His father was really struggling to get by on just his social security checks. The supervisor knew he didn’t want to end up struggling in the same way. 

He went home to his wife and said, “I know this is going to be hard, but we have to start saving just as much as we can if we want to retire with dignity.” He started saving the maximum amount allowed—around $14,000 at that time—and continued to save the maximum after he turned 50. This year, he is planning to save nearly 40% of his income into the 401k. With modest spending levels and a growing retirement nest egg, he wakes up every day and asks, “do I want to retire today?” He could, but so far has decided to keep working. He’s only 59.  

We spent a fair amount of time during our group enrollment meetings educating 401k participants on the 401k’s fee structure. We are strong proponents of transparency, so in the interest of full disclosure we started our meetings with a discussion of the 3 primary hands in the 401k cookie jar and how each of the fees are applied to participants. For instance, we discussed the fact that our flat annual fee would be applied to individual accounts pro rata based on each participant’s 401k account balance. With the information we provided, individuals with relatively high 401k balances could—for the first time—grasp that their individual share of the aggregate fees was material. 

One of the employees with a high 401k balance called us into his office and seemed upset. “I just realized I’m personally paying you more than $1,000 a year. What do you do to earn that? What exactly is your role in this plan?” To be honest, we were a little defensive at first. We helped reduce aggregate fees by 40% and improved the plan, so we thought we’d be viewed as the good guys. It only took us a few seconds, though, for us to understand that the question was spot on and deserved a well thought out response. 

We explained our role as a fiduciary and how he benefited from the low-fee fund line up we selected and continued to monitor and validate. We also explained our role as an educator and how we are passionate about—and adept at—motivating people to save for retirement. This ultimately helps spread the plan fees across other employees. Finally, we talked about the expert, unbiased advice we could provide to him within the context of the plan. We talked in detail about some retirement planning options he was considering and by the end of the meeting we had proved our worth and made a new friend.      

In the third week of the 401k roll out, we began hosting individual counseling sessions at one of the larger company sites. We’d spent the prior weeks in group meetings, where—as mentioned—we’d met with some healthy skepticism. Over the course of that third week, though, we found that we started to earn trust. In these individual meetings, we demonstrated an understanding of a broad range of personal financial issues. Perhaps more importantly, we could give advice that proved we were free of conflicts. We discussed taking advantage of spouses’ 401k match programs, paying down student loans, moving old 401ks to self-managed low-fee IRAs and considerations on pre-tax versus after-tax 401k contributions. 

As the week progressed, the requests for individual meetings increased as word of mouth spread that Aptus was knowledgeable and trustworthy. We believe trust needs to be earned over time, and we know that a series of helpful, informative, conflict-free discussions with 401k participants can go a long way toward establishing a relationship of trust.       

As we came to the end of long series of individual meetings, we began to see several people who signed up for counseling at the last minute. One guy came in to talk about his 401k, but during the discussion it become clear that the 401k was not his primary financial concern. He had three adult children living at home. He was providing room, board and paying cell phone bills for the entire family. He was living beyond his means and, as a result, had maxed out more than a dozen credit cards. He was stressed, sad and embarrassed. 

We understood his emotions but saw nothing that should have made him feel ashamed. He was working hard to provide for his family. He became over-extended with debt. It happens and it’s fixable. We encouraged him to save a little into his 401k to take advantage of the match, but primarily we discussed strategies for attacking his credit card debt. He left with a commitment to paying off the cards, one by one, with a path to being debt free in fewer than 10 years. We also encouraged him to discuss with his children and family the need for them to become financially independent. After he pays down debt and weans his family off his support, he’ll be able to dramatically ramp up his savings rate and still be able to retire before he’s 70. There’s almost always light at the end of the tunnel.     

We visited one of the companies more remote sites about midway through the 401k rollout and had a bit of a eureka moment. We noticed that one of the site’s supervisors was taking an active role in getting his team members to see us for 1x1 meetings. During these individual counseling sessions, we advocated for increased savings rates and most of the employees took our advice and upped their 401k contributions. This reminded us of an earlier experience with the night supervisor at a production plant, who was going out on the factory floor to pull people into individual meetings with us. In that situation as well, people really responded to our advocacy for increased savings.

Eureka! We realized that people generally will save more money for retirement if someone asks and, maybe most importantly, someone cares. We are very clear in our plea to employees to save more money and we tend to be successful in encouraging savings. Our eureka moment, though, is that if a friend, family member or supervisor is also encouraging savings then our message is much more likely to resonate. Our experience is that great leaders care deeply about their people. When we see leadership within the context of a 401k, we see high savings rates, financial wellness and peace of mind.       

We’ve visited dozens—maybe hundreds—of companies in our careers. We’ve become pretty adept at quickly understanding company cultures—the shared norms and values that make those organizations unique. It’s often interesting to see how our initial impressions on culture translate into measurable results: employee turnover, workplace accidents, productivity, sales, revenue and profits. In the context of our 401k roll out, we could often get a sense of the culture just based on the office aesthetics. Offices that were clean, orderly and full of natural light typically indicated a sense of concern for employee well-being. An office we walked into with real flowers in the lobby was a clear indication to us that somebody in that building cared about people. The meetings in these pleasant locations tended to be, well, pleasant. And pleasant meetings also led to positive results in terms of employee retirement savings rates.

Maybe the broader takeaway on corporate culture is that good 401ks are a sign of companies that care. When companies genuinely care—about shareholders, customers and employees—then that positive atmosphere is reflected in the people, the processes and the performance.

Some people are born with empathy and some people have to learn it. As a financial advisor and financial planner, empathy is a job requirement. We make no assumption that people should know things, or understand things or think in the way we do. Our job is to make complex financial topics understandable and relatable to everyone, regardless of their cognitive or emotional biases.

In the penultimate week of our 401k roll out, we witnessed an interesting exchange between two employees. One just couldn’t understand how the other had forgotten how much they were contributing to the 401k. We, on the other hand, were not surprised at all. We’re always ready to answer that particular question because we understand the tendency for employees to “set it and forget it” with regards to 401k choices. In many cases, people just forget the precise amount they're saving. No worries, we just help them look it up.

Empathy helps all of us us better understand others, diagnose situations and ask the questions needed that provide us with insight. We should always try to understand how others think or act and empathy ultimately helps us communicate our points of view more effectively.     

At the end of our 401k enrollment process, we sat down for an individual counseling with a man who opened the conversation by saying, “I know you recommend investments for the long-term, but I won’t be around for retirement so I’m not sure it really matters.” We weren’t quite sure what he meant but he continued, “I have a lung disease and it’s taken a turn for the worse. I won’t live much longer.” He went on to explain that he’d already lived longer than his doctor’s original prognosis, but his blood oxygen levels had recently declined and he’d have to start oxygen therapy soon. It would only get worse. This took the wind out our sails, but we plowed ahead on his 401k enrollment knowing that the choices we made were for the benefit of his wife and children.

It was a reminder that we have no idea what life holds for us. We can, and should, plan for the future, but we’re lying to ourselves if we pretend to know what that future will hold. We always try keep this old adage in mind: "plan as if you’re going to live forever but live as if you’re going to die tomorrow." Save at least 10% of your paycheck into a retirement savings account and invest in a low-fee target retirement date fund. Set and forget it. Then embrace life.

Tim Quillin