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Strategies to get nonnative speakers into retirement plans

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Midsize employers have found ways to increase their 401(k) plan participation rates among employees who speak English as a second language.

Changes in plan design—primarily automatic enrollment—are the main drivers of the increased participation along with improved, culturally sensitive communications, experts say (see box).

The efforts, which allow employees to plan for their retirement, are recruiting and retention tools, experts say.

At its conference in December, the New England Employee Benefits Council cited Vicor Corp., a manufacturer with 1,053 employees, 45% of whom speak English as a second language, as a “most innovative employer.” The Andover, Mass.-based maker of power conversion components and systems received the award for boosting its 401(k) participation from 70.6% in 2002 to 84.5% in 2010.

Another example is Unity Manufacturing, an electrical enclosure manufacturer with 93 employees, 45% of whom speak primarily Spanish. The Garland, Texas, company has boosted elective participation in its 401(k) plan from 55% three years ago to nearly 80% late last year. The average employee wage deferral rate also rose from 3.7% to 5.9%, said Chief Financial Officer Richard Buford.

Unity, a safe harbor 401(k) plan, contributes to its employees' accounts regardless of whether they elect to have their own funds deferred.

Prudential Financial Inc. provides administration, communication and investment options for both companies' plans.

In the past 18 months, BSI L.L.C., a Denver-based food service product manufacturer with 100 employees, also boosted the 401(k) plan participation rate of its Spanish-speaking employees by 150%, with support from Denver-based bilingual consultant Futuro Solido USA L.L.C., said Susan Kemp, BSI's human resources manager.

In response to demand, employers and providers are producing more materials and information in Spanish than in other languages, but employees who speak other languages often have access to a call center that will connect them with a translator to help them answer their questions.

Overall participation in 401(k) plans has been increasing, experts say.

Participation rates at Fidelity Investments, covering 20,000 corporate defined contribution plans and 12 million participants, rose to 66% in 2010 from 64% in 2007, said Beth McHugh, vp of marketing at Fidelity Investments in Covington, Ky.

Meanwhile, an Aon Hewitt survey last year of primarily large-plan clients found participation rates averaged 76%, said Barbara Hogg, head of the retirement communication group in Chicago.

Vanguard Group Inc. studies showed the participation rate at companies with 100 to 300 employees was 70% in 2010, compared with 68% at all Vanguard plans, which was up from 65% in 2001.

“A plan structure that includes automatic enrollment into a diversified portfolio and automatic increases (of amounts employees defer into their accounts) helps all participants save for retirement, but it's critical for those with English as a second language,” because saving decisions are simplified for them, said Veronica Lee, senior vp of client services at 401(k) Advisors Inc., an Aliso Viejo, Calif., consultant.

Vanguard's study of seven large defined contribution plans found that “automatic enrollment improves participation rates for all race/ethnic groups, but the improvement is most dramatic for blacks and Hispanics.” Cynthia Pagliaro, Valley Forge, Pa.-based senior research analyst at Vanguard, said research has shown “that different races and cultures perceive savings and time horizons differently,” so the ease of auto enrollment may help in their decision to participate.

Vicor and Unity said automatic enrollment of new employees boosted 401(k) participation rates.

Once a Unity employee becomes eligible at six months, the company makes a nonelective contribution of 3% into the employee's 401(k) account, Mr. Buford said.

Unity's broker from Lockton Cos. L.L.C. in Dallas and human resources staff then meet with the group and explain that if employees take no action, they will be auto-enrolled at 3% deferral of their wages. That percentage automatically rises 1% a year. Employees can choose to defer up to 10% beginning in 2012, Mr. Buford said.

“If you look at the prevalence of auto-enrollment, that all came about because people weren't paying attention to communication” about their 401(k) plan, said Robyn Credico, senior retirement consultant at Towers Watson & Co. in Arlington Va.

Ms. Credico stressed that any communication aimed at increasing participation should be “a targeted campaign,” not a generic message that employees can tune out.

Communication is “absolutely” as important as auto-enrollment, Mr. Buford said. “We've had people pencil in a 10% deferral at the educational meetings, and that wouldn't happen” otherwise, he said. “Auto-enrollment is a great tool, but if employees start to see that money is going out of their paycheck and they don't have a sense why, they could call Prudential and say, "Change it to zero,'” he said.

Vicor and Unity offer Prudential's GoalMaker, an online asset-allocation tool that is “especially good for someone who doesn't have a good understanding of investment,” said Jamie McInnes, senior vp and chief operating officer—total retirement solutions at Prudential Retirement in Newark, N.J.

“One of the biggest things that scares people is: What investments do I choose?” GoalMaker selects investments based on a person's time until retirement and risk tolerance. “When people see how easy that is, the scary part of participation starts to go away,” Mr. McInnes said.

“Using GoalMaker is something we stress,” said Mr. Buford. “The convenience and ease of use appeals to them.” The tool periodically rebalances a portfolio “even if there's no attention paid to it. And it's all explained in Spanish,” he said.

A 401(k) plan is effective for employee recruitment and retention, experts said. By offering a 401(k) with a company match, employees “see we care about their future,” Mr. Buford said. With education and communication, “it maximizes their feeling that as an employer we really want them to take advantage of the benefits of working here.”