PLANSPONSOR, February 2015
We asked our plan sponsor reader’s how and how often they benchmarked their retirement plans.
Benchmarking a 401(k) plan gives retirement plan sponsors a clear understanding of the costs associated with running and maintaining their offering. By going through the process of benchmarking your plan, to see how it compares with others of a similar size and/or type, you often will be able to measure participant saving and investing metrics, quantify the fees you are paying and determine whether those expenses are reasonable.
Benchmarking often enables plan sponsors to lower their plan’s costs, expand and improve their service offerings, even reduce their fiduciary exposure. We asked NewsDash readers, “How often does your company benchmark the success of its defined contribution (DC) plan?” And “What measures are looked at?
All respondents work in a plan sponsor role. The majority (91.7%) reported that they benchmark their defined contribution plans once per year, while the rest (8.3%) do so every five years.
When the plan is benchmarked, 91.7% measure average participation rate, and the same percentage measure administrative expenses against those of peer plans. More than 83% measure average deferral percentages, and 100% consider their investment expenses compared with peer plans. Less than two-thirds (58%) measure the percentage of participants properly diversified in investments, and one-quarter measure the percentage of participants on track to replace a certain income level in retirement. While 41.7% look at the percentage of participants getting the full match, a similar number measure participant use of their website and educational materials.
Asked to rate the value of each of these metrics when assessing the success of their DC plans, respondents answered as follows:
- Investment expenses compared with peer plans—100% very important;
- Administrative expenses compared with peer plans—91.7% very important, 8.3% somewhat important;
- Average employee participation rate—81.8% very important, 18.2% somewhat important;
- Average deferral percent—81.8% very important, 9.1% somewhat important, 9.1% don’t know;
- Percentage of participants getting the full match—63.6% very important, 9.1% somewhat important, 18.2% not important, 9.1% don’t know;
- Percentage of participants properly diversified in investments—58.3% very important, 41.7% somewhat important;
- Percentage of participants on track to replace a certain income level in retirement—36.4% very important, 27.3% somewhat important, 18.2% not important, 18.2% don’t know; and
- Participant use of educational materials/website—25% very important, 58.3% somewhat important, 8.3% not important, 8.3% don’t know.
In “other” responses, readers indicated they measure fund performance over time. (As always, verbatim responses reflect the opinions of individual readers and not the stance of PLANSPONSOR and its affiliates at Asset International.)
“We actually evaluate our plan once per quarter with our retirement committee. More than once per year was not one of the selections.”
“We are a multiemployer plan, as we are a Professional Employer Organization (PEO) organization. We do monitor the participation per each of our clients, but do not aggregate over the whole plan, because that would be a metric without meaning.”
“The survey assumes the DC plan provides matching funds, which ours does not do; it is the state plan that mandates the EE [employee contribution] and ER [employer contribution] rates.”
“Overall we [sponsors] have done a good job in presenting the product. We’re now at the stage where participants need to ‘de-cumulate.’ Here, I feel, is the next best-practices measure of success.”