Redesigning a 401(k) Plan at Haley-Midland Custom Case Solution & Analysis

1. Evidence Brief — Business Case Data Researcher

Financial Metrics:

• Current 401(k) Participation Rate: 62% (Exhibit 1).
• Company Match: 50% of the first 6% of employee contribution (Exhibit 2).
• Average Employee Tenure: 4.2 years (Exhibit 1).
• Administrative Costs: $450,000 annually, currently borne by the company (Exhibit 3).

Operational Facts:

• Total Headcount: 2,800 employees across 12 locations (Exhibit 1).
• Current Plan Design: Voluntary opt-in with 12 investment fund choices (Exhibit 2).
• Demographics: 45% of workforce under age 30; 35% aged 30–50; 20% aged 50+ (Exhibit 1).

Stakeholder Positions:

• CFO: Focused on reducing administrative overhead and minimizing fiduciary liability.
• HR Director: Prioritizes employee retention and financial wellness; favors auto-enrollment.
• Union Representatives: Concerned about any reduction in employer matching contributions.

Information Gaps:

• Detailed breakdown of participation rates by salary decile.
• Specific cost-benefit analysis of switching to a safe-harbor plan design.

2. Strategic Analysis — Market Strategy Consultant

Core Strategic Question: How should Haley-Midland modify its 401(k) structure to increase participation and retirement readiness without triggering prohibitive cost increases or labor relations disputes?

Structural Analysis:

• Behavioral Economics (Nudge Theory): The 38% non-participation rate is primarily driven by inertia. Moving from opt-in to auto-enrollment will shift participation toward 90%+.
• Cost-Benefit Analysis: Shifting administrative costs to the plan (participant-paid) is standard practice but risks pushback from the workforce.

Strategic Options:

• Option 1: Auto-Enrollment with Default Lifecycle Funds. Increases participation immediately. Trade-off: Potential increase in company matching costs if participation spikes.
• Option 2: Safe-Harbor Plan Design. Eliminates top-heavy testing and simplifies compliance. Trade-off: Requires a mandatory minimum employer contribution, potentially increasing current costs.
• Option 3: Financial Wellness Education Campaign. Low-cost, high-engagement. Trade-off: Historically low impact on actual participation rates compared to structural changes.

Preliminary Recommendation: Implement Option 1 combined with auto-escalation. This addresses the core problem of inertia while maintaining flexibility in the employer match.

3. Implementation Roadmap — Operations and Implementation Planner

Critical Path:

• Month 1: Legal review of plan document amendments and union consultation.
• Month 2: Vendor renegotiation regarding administrative fee pass-through.
• Month 3: Employee communication rollout and 30-day opt-out window.

Key Constraints:

• Union Approval: The collective bargaining agreement requires consensus on benefit changes.
• System Integration: Payroll software must be updated to handle auto-enrollment triggers.

Risk-Adjusted Strategy:

• Implement a phased rollout starting with non-unionized locations to test system stability.
• Set the default contribution rate at 3% to keep initial costs manageable for lower-income employees.

4. Executive Review and BLUF — Senior Partner

BLUF: Haley-Midland must adopt auto-enrollment with an auto-escalation feature immediately. Current participation of 62% is an operational failure that leaves the firm vulnerable to future fiduciary scrutiny. The cost of inertia outweighs the administrative complexity of changing the plan. The union concern is manageable through grandfathering current contribution levels while applying new rules to future hires.

Dangerous Assumption: The analysis assumes employees will remain in the plan once auto-enrolled. If the default investment option performs poorly, the firm faces significant reputational and potential legal risk.

Unaddressed Risks:

• Cash Flow Volatility: A sudden 20% jump in participation will create an unbudgeted increase in employer match liability.
• Communication Failure: If employees perceive auto-enrollment as a pay cut, turnover in the under-30 demographic will spike, increasing recruitment and training costs.

Unconsidered Alternative: A total shift to a defined contribution plan with a tiered match structure based on tenure. This would incentivize retention while controlling long-term costs.

Verdict: APPROVED FOR LEADERSHIP REVIEW