Employer contributions make up a significant portion of money going in to 401(k) plans. In 2013, $109 billion, or a third of total contributions to 401(k) plans, were employer contributions, according to recent research from BrightScope and the Investment Company Institute.
For Microsoft, which is changing its employer-match formula starting this month, the decision to increase the 401(k) match was based largely on a desire to equalize its healthcare and retirement benefits, says Sonja Kellen, director of global retirement benefits for Microsoft.
“We review our benefits portfolio every year, looking at it holistically, in terms of the investment we're making from a cost perspective, but also how we’re benchmarking among our peers,” she says. “We wanted to balance it out a little bit more. Our health plan is incredibly generous; we find [it] to be one of the best in the industry. We wanted to make sure that we equally had as much investment in our financial benefits.”
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Starting in January, Microsoft will match 50% of employees’ regular pre-tax and Roth deferrals, up to a maximum of $9,000. That’s a significant increase from the company’s previous employer match, which was 50% of the first 6% employees deferred, to a maximum of 3% of pay.
“Somebody who makes $100,000 a year is going to go from a $3,000 maximum matching potential to a $9,000 maximum matching potential,” says Kellen.
Plan sponsors in general “are just trying to make sure that their company plans are competitive. … I would say that’s the main thing that we are looking at with sponsors,” says Paula Rittereiser, senior vice president and managing director with Fidelity, which is the recordkeeper for Microsoft’s 401(k) plan. “It’s just to make sure that they are on par and it’s important to help have that [employer] match on the program.”
In addition to boosting its match, Microsoft ran a pilot program in 2014 where it offered employees 15-minute in-person, one-on-one financial coaching sessions with a Fidelity representative. Over the course of 11 weeks, Fidelity conducted almost 1,500 of these one-on-one sessions, 50% of which resulted in employees taking some kind of action with respect to their 401(k) plan.
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“At some point in everyone’s career they are going to want to talk through their situations. Whether that is over the phone or even increasingly now, there are online chats in some cases or face to face. It's hard to replace that,” says Anthony Fallahi, vice president, participant guidance solutions with Fidelity. “We’re still seeing tremendous appetite for those conversations.”
Three pillars
Microsoft’s financial wellness program is built on three pillars, says Kellen – strong plan design, relevant tools and resources and personalized communications.
On the plan design side, the company offers immediate enrollment in the 401(k) plan, with 100% vesting from day one.
“We also offer people the opportunity to save after-tax money, in addition to pre-tax and Roth, so people can save up to $20,000 of after-tax [money], and then we also have the ability for them to convert that to Roth in-plan,” says Kellen. “We have annual increase program that's opt-in, and you can choose to increase your savings 1% to 4% every year on a set date. A lot of people align that to their bonus and their merit increases.”
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The company also uses Fidelity’s EasyEnroll service, which enables employees to enroll in the plan at a deferral rate of 8%, 10% or 12% (or higher if employees choose) with just two clicks, using a smartphone, tablet or desktop.
“We found that there is a strong correlation between where you set your match and how you represent the plan from an enrollment standpoint, and what people view as an endorsement,” says Kellen of the deferral percentage options that are presented to employees. “By having a higher rate available as the easy-enroll option, you sort of are endorsing the need to save more than maybe you would have traditionally.”
For tools and resources, Microsoft uses Willis Towers Watson’s myFiTage online tool, which helps employees understand at what age they’ll become financially independent and be able to live without a paycheck. “Instead of representing your track to retirement as a replacement ratio or as a dollar balance or as an annuity value, it tells it to them as an age,” says Kellen.
Another tool is Microsoft’s total rewards portal, which Kellen says is a broad-based look at the total investment Microsoft makes in its employees. It incorporates compensation and benefits components, including stock and cash pay as well as healthcare benefits.
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The company also uses Financial Engines for investment advice and offers additional guidance through Financial Engines “to help people who are nearing retirement come up with a solid plan, and really to treat their account like an annuity without actually having to buy one,” says Kellen.
Incentives
And while many employers offer employees financial incentives in the form of health plan premium discounts for completing health-related tasks such as biometric screenings or health risk assessments, Microsoft takes its incentive program a step further.
Employees who complete the health risk assessment, biometric screening and financial wellness activity – which involves logging into the myFiTage tool and reviewing its “suggest-a-plan-for-me” feature – receive a $50 cash incentive or a $150 discount on the Microsoft Band, the company’s fitness tracker.
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The third pillar of Microsoft’s financial wellness program is personalized communications.
“We do an annual campaign that’s personalized, really focusing people on one next best step that they should take in their financial wellness journey,” says Kellen. “What we've done is we’ve tried to take a very data-driven approach to looking at where people are at and what their next optimal step is, and helping them to think through a prioritized list of how to invest that money among the different programs available.”
Personalized messages are pushed out via email and also placed on the company’s total rewards portal. Someone who has yet to enroll in the 401(k) plan for example, would receive messaging about the exact dollar amount they’re missing out on based on how much money they make. A different employee who’s already enrolled in the plan and receiving the company match would get messages about ways to increase their savings even more.
“Our biggest challenge is just getting people to engage, and so the key is really hitting them from different angles,” says Kellen. “People all have different needs in terms of what communication is going to be most effective to them, or what education is going to be the most effective to them as well. Trying to have online resources, on-demand trainings, in-person trainings, and then also those one-on-one touch points [is important.]”
