“Physician, heal thyself.” That Biblical maxim can be applied in other contexts as well. How about, “Teacher, instruct thy peers”? One teacher in Baltimore is following that advice by teaching his colleagues about retirement saving through a program of his own genesis.
It’s a success story that exemplifies how good ideas — and the initiative and drive to take a positive action to increase understanding of, and participation in, retirement saving programs — can start with just one dedicated and creative person. And it all shows what can happen when an employer not only buys in, but also creates and sustains an environment where such a thing can happen.
The employee retirement plan education program at Gilman School, a private K-12 institution in Baltimore, Md., is the brainchild of Sean Furlong, its director of finance and administration. The idea occurred to him while he was presenting material to students about budgeting and handling finances, including retirement plans.
Furlong pitched the idea of providing Gillman faculty with in-house education about retirement plans and saving to the school’s administrators, whom he says were very receptive. “Retirement education is part of the school benefits program now,” Furlong notes.
“Our goal from the presentation is to help our employees become aware of what they need to put aside for retirement (via education and presentations), then encourage them to put that away prior to signing up for annual benefit renewal,” says Furlong. “Then once invested, make sure our employees have solid investing options at the lowest cost possible.” Finally, he says, they seek “to educate our employees on overall financial planning, above and beyond retirement
“I absolutely feel education of employees on retirement is critical,” Furlong asserts.
Nut and Bolts
So what does the program entail?
Participation in Gilman’s retirement plan is mandatory. “We make it mandatory that all employees put aside 5% of their pay, which will receive a 6% match from Gilman. Then we offer 1:1 contribution for, and dollar put in above, 5% up to 7%. So if an employee puts in 7%, they get an 8% match,” Furlong says. The materials presented to Gilman employees through the program report that Gilman School’s average contribution to retirement plans is 4.1% higher than those of employers with plans of similar size.The program has many facets, including:
- presentations to all employees at once (done at least once a year for the last 5 years);
- ongoing online opportunities to learn through Financial Finesse — access to tools, articles and presentations on any financial topic of interest or concern;
- articles sent to all employees on current topics relevant to retirement readiness;
- seminars once a year on various topics; and
- once-a-year presentations to employees before annual benefits elections on the benefits and importance of saving more.
The materials presented to employees use graphics to reinforce the premise that it is beneficial to
start saving as early as possible.
For instance, assuming a $3,000 annual investment with 6% annual growth and reinvestment of all plan earnings with no taxes imposed, it tells participants that their retirement accounts would amount to the following by age 67, based on when they start saving:
- age 20: $679,500;
- age 35: $254,000; and
- age 45: $120,000.
The materials also use examples to illustrate the difference a seemingly small increase in the deferral rate can make for a participant. For instance:
- $50,000 annual salary
- Defers 5% into the retirement plan
- Assume a 7% annual rate of return
- At age 65 (20 years) has $102,488 in his retirement account
Same participant with one small change:
- $50,000 annual salary
- Defers 6% into the retirement plan (only $19.23/paycheck)
- Assume a 7% annual rate of return
- At age 65 (20 years) has $122,986 in his retirement account — a difference of $20,498 for just a small tweak to the deferral rate
The materials also use illustrations to convey:
- suggested retirement savings targets as a multiple of annual income, by age from 35 to 67;
- how investments can grow over 25 years at a salary of $30,000, $50,000 and $75,000;
- the benefits of investing retirement funds as early as possible;
- the consequences of not saving enough and not starting retirement saving early enough;
- advice older workers give to younger workers about saving for retirement; and
- how one can spend less in order to save more.
Attending an initial one-on-one session is mandatory, too. But while all employees are required to attend those initial sessions, participation in the education program is not mandatory.
The seminars offer employees flexibility; Furlong notes that employees have a choice of different seminars. For instance, he says, Gilman offered one last year for employees getting close to retirement on Social Security claiming options and the potential impact of those decisions.
Has the program motivated participants to change how they save for retirement?
“We feel we have had an impact,” says Furlong. “Our overall savings rate has gone in five years from approximately 16% to approximately 22%.”
The program materials back Furlong’s assessment. They say that the overall average retirement plan contribution rate increased by almost 1 percentage point to nearly 10.2% from 2012 to 2013, and that among the employees who changed their contribution rate, the average increase was 2.03%. The Gilman School’s average deferral is 13%, with a match of 8%.
Gilman’s plan compares well against other plans, too, with an average contribution 4.1% higher than similarly sized plans.
The Gilman plan argues in favor of investing in target date funds. Says Furlong, “the number of participants in target date funds is close to 85%, which we prefer to individual choices folks used to make in past (for instance, they could invest their retirement funds wholly in stocks, bonds, commodities, etc.). We were merely providing options without education. Through education, we feel the target date funds are perfect for our employees who tend to not look at their portfolios much and who are not in the investing business (so concepts of rebalancing, asset allocation, reducing risk as you approach retirement are not as prevalent in our culture),” he adds.
Employees paid attention: investments in TDFs amounted to 2.3% of the assets in the plan before
the program was instituted; now they stand at 87.15%.
So what do employees say about it?
“We have found that our employees close to retirement are very appreciative of the work we
have done. In fact, when we present to other employees we occasionally have a teacher close to retirement who will choose to provide additional comments about the importance of what we are doing and the terrific benefit it is,” says Furlong.