ProAssurance

In 2006, the benefits team at ProAssurance, a medical liability insurance company, evaluated their 401(k) plan and realized that many of their 575 employees were not participating. Even of those who did, many did not take advantage of the five percent match that the company offered. Concerned that employees were “leaving money on the table,” the company asked their plan provider to suggest ways to address their concerns and help their employees begin to save more.

Their plan provider immediately suggested an automatic 401(k), citing key benefits. First, it boosts participation, often to as much as 85-95 percent. Second, with the introduction of some key plan features, employee savings can increase dramatically. The first step for ProAssurance was to bring the issue to a committee of human resource representatives, the plan provider, the President, and the Vice President of Investments (whose job it is to help the company monitor the investment choices in the 401(k) plan). The committee unanimously agreed that an automatic 401(k) could help them help their employees begin to save more without overwhelming anyone. As one HR professional at ProAssurance put it, “This is just one more thing we can take off of our employees’ long to-do list.”

Just six months after the initial meeting, ProAssurance launched its automatic 401(k) plan, in January 2007. Initially, the plan only enrolled new employees. However, the company did enroll those existing employees that had not specifically said no to earlier participation drives. Acting on best practices for implementing such a plan, they chose a lifecycle fund as their default and started each employee at a three percent deferral. Despite the fact that ProAssurance was also merging with another company and dramatically increasing its employee base, the implementation process went smoothly. In fact, plan costs did not rise as a result of automation. Even better, employee participation in the plan has risen from 74 percent in 2006 to 94 percent in 2007 – and employee feedback has been overwhelmingly positive.

Once the company was able to assess how successful automation had been, it started to look at how to improve the plan. For one thing, the company match was not being used to its fullest potential and ProAssurance wanted that to change. The most logical next step was to automatically increase the amount employees contributed each year through automatic escalation. Currently, automatic escalation will increase savings by one percent each year, topping out at five percent. The company also added a feature called Step Ahead that allows employees to select larger automatic increases that continue well past the five percent matching amount.

ProAssurance works hard to provide substantial retirement benefits to their employees. In addition to the five percent savings match that is immediately 100% vested, the company also gives each employee a contribution of five percent of their base salaries into their retirement plan (this “base” contribution is subject to a 5-year graduated vesting schedule.). Automatic 401(k)s were just one more way to help employees save more earlier and take advantage of all the company had to offer. For those at ProAssurance, the most important benefit of their automatic 401(k) plan is not just that it has increased enrollment, it’s that employees have begun to take an active interest in their new plan, their investments, and building a nest egg for a healthy retirement.