Mandarin Oriental Hotel Group

The Mandarin Oriental Hotel Group, operator of luxury hotels famous for impeccable service and exquisite facilities, started its 401(k) program with baby steps in 1987. At that time, paper enrollment forms were the norm in defined contribution plans, as was a six-month waiting period before being able to participate. The company offered 20 funds—ample choice was considered a best practice two decades ago—and the company matched 50% of the first 6% of salary.

After the Pension Protection Act of 2006, the company took a hard look at its plan. The most troubling aspect was enrollment rates—which, in spite of the match, stood at only 40%. It was time to take action. A 401(k) Plan Committee was formed. It set about selecting a plan administrator that could deliver luxury service in its own right. The Committee was adamant that the administrator must be able to offer a plan design to help increase participation, but also offer low-cost, well-managed funds and an exceptional level of customer service to Mandarin Oriental colleagues, as employees are referred to within the organization.

A number of goals were set for the revamped plan:

• Make it easy to enroll
• Increase participation by at least 50%
• Provide easy to understand investor education
• Help colleagues take control of retirement savings
• Ensure all locations pass annual discrimination testing

To boost enrollment rates and pass discrimination testing, the company used a best practice that is starting to catch on: Mandarin Oriental adopted automatic enrollment of all employees, not just new hires—at a 3% salary deferral rate. The company kept the same match equation in place, and defaulted contributions into a fund with a moderate risk profile. It was also determined that the 3% default contribution level would be based not just on salary, but on tips and gratuities processed through payroll, effectively boosting the savings rate of its colleagues.

While the company braced for some employee push back to automatic enrollment, especially from colleagues who had not previously enrolled in the plan, it has been a non-issue. Automatic enrollment has been received extremely well throughout the organization.

In addition, new colleagues became eligible to participate on their date of hire: no waiting period, which is a powerful best practice to get employees saving as early as possible. Another change was that the number of fund offerings was cut to only four professionally managed and well diversified portfolios, making selection less confusing.

As before and after results attest, these changes allowed Mandarin Oriental to surpass its goals by 115%.

The company—and its colleagues—are pleased with the initial success. Colleagues are part of a 401(k) plan that is helping them achieve an important facet of their career with the Mandarin Oriental Hotel Group, a secure retirement.