Defined Contribution

How NOVA Financial & Investment Corp.
boosted participation by 87%

BlackRock |Jan 2, 2020

Small plan, big changes

Tucson-based NOVA® Financial & Investment Corp. wanted to do more to make a successful retirement possible for all of its employees. To help bring their vision to life, they worked with George Fraser, an advisor with Retirement Benefits Group (RBG). Together they articulated a plan design strategy that matched the entrepreneurial, partnership-driven company’s goals.

The results were dramatic for Nova's 800 employees:

The results were dramatic for Nova's 800 employees

Sizing the challenge

One of the factors prompting the effort was the recognition that they could do more for a broader spectrum of their employees. “The company plan failed discrimination testing in 2013 through 2015,” said Oystein Konsmo, NOVA’s Chief Financial Officer. Plan sponsors must test their 401(k) plan each year to ensure that employees' contributions stay within a certain proportion of each other, regardless of salary. The issue was that highly paid people in NOVA’s mortgage business tended to max out their contributions, but other employees were less engaged with the plan, with overall participation at just 50%.

Starting in 2014, the company implemented a series of new measures to encourage participation across their entire employee population. “We wanted to make it easier to save so we put an auto-enrollment feature in place for new employees. Next, we introduced a newly designed employer match, 25% up to the first $4,000 in employee contributions, for a maximum of $1,000 per year,” said Konsmo. The enrollment rate rose from 50% to between 65% and 75%, but then leveled off.

NOVA wanted more. After a formal bidding process and multiple investment committee sessions, the company selected George Fraser and the RBG team as its financial advisor and changed its recordkeeper to OneAmerica. “At the same time, we implemented auto-escalation and re-enrollment features,” said Konsmo. “If people decide not to participate in the plan, they have to opt-out each year.”

The new defined contribution (DC) plan auto-enrolls employees into the QDIA (qualified default investment alternative) at a contribution level of 3%, with auto-escalation at 1% annually until the employee reaches a 10% contribution level. The results have been startling. “My goal initially, when I put together a two-year strategic plan for the executive team, was to get the participation rate up to 80% in 24 months and pass our discrimination testing. We got the participation rate to over 90% and passed the discrimination testing in half the amount of time,” said Konsmo.

In less than two years, participation rose to 97% with almost 80% of participants staying in the QDIA (BlackRock LifePath Index Funds) after auto-enrollment. Since RBG became NOVA’s advisor, plan assets rose from just under $12 million to $18 million currently. Over that time, contributions increased 87%.

"Committees want things simplified, too. One differentiator for NOVA stemmed from a one-pager called the RBG service commitment that listed all of the services we provide. At the bottom of the page was the price."

- George Fraser, 24-year veteran advisor, Retirement Benefits Group

Know your audience

The redesign of NOVA’s plan is the product of a carefully crafted foundation for behavioral change. But RBG believes that for some employees, one-to-one education is the deep dive needed to learn how to save. Once the plan was in place, there were five RBG advisors in the field pairing with One America representatives at each of the 35 participant education days.

Fraser believes that employees need key messages crafted to address a broader audience. “The industry is speaking to the wrong population – the average family is making $40,000 a year,” he stressed. “Advisors and providers say that if you are not putting away 15% or don’t have $250,000 ready for healthcare costs, you will be underprepared. It’s terrifying.”

“Our job is to create hope. Whether someone is 20 or 50, we tell them everyone here is getting $1,000 a month in Social Security, which is the equivalent of having $250,000 in a 401(k).” He and his team also use storytelling to make key concepts easy to understand. For example: “How many of you pick up pennies in the street? Not many? If you take four pennies out of every dollar you make, and then two more pennies the following year, would you be okay with that?” The answer is typically a resounding yes.

These conversations provide the opportunity for personalized support, such as when Fraser convinced an employee that he could save $1,500 a year by quitting smoking, or when he helped participants recover funds owed them by outside companies.

The collaboration between NOVA’s HR, finance and marketing teams was an essential element in communicating the changes, according to Konsmo. For example, the company’s marketing team created NOVA-branded flyers highlighting the new plan website and landing page, which were handed out to all branch employees.

Once employees understood the benefit of the new features, they got onboard quickly, Fraser noted. With the plan design well established, RBG now provides quarterly education events at NOVA branches to talk to new employees and re-connect with plan participants. In addition to helping employees prepare for retirement and enjoy greater financial wellbeing today, the plan has been transformed from an HR problem to an effective recruiting tool.

Learnings across the board

But while many of these concepts have universal appeal, one size does not fit all. “Not every plan design feature fits every plan – you have to look at your goals and objectives,” said Konsmo. “Everyone needs to look at their specific employee population.” When looking at plan design changes, consider the following:

  • How can you best engage inactive participants? Taking time to identify “underserved” populations can help in developing the most effective enhancements for your plan.
  • How can you boost plan participant loyalty? What matters most to your employees? Determine how you can better care for participants to positively impact recruitment and retention.
  • Be flexible in your solution. Creatively thinking about the resources you can dedicate to solve for specific gaps can help you generate the right design features for your plan.