Current Thinking

Benchmarking Your Organization’s Retirement Plan

While assessing whether or not your plan is in line with the current trends and best practices for retirement plans may be low on your “to do” list, it is important factor when it comes to employee recruiting and retention, and also in meeting your fiduciary obligations as a plan sponsor.

WHAT SHOULD I BE LOOKING AT WHEN DETERMINING THE EFFECTIVENESS OF MY ORGANIZATION’S RETIREMENT PLAN?

Measuring your plan’s success is more than simply evaluating plan deferral and participation rates it includes measuring
fiduciary responsibilities, the degree to which plans are in compliance, evaluating plan fees, evaluating overall plan design in terms of peer and competitive considerations, benefits strategy and coordination across all plans, and also, in terms of your retirement programs’ ability to help participants enough to attain retirement security.

WHAT FACTORS SHOULD BE CONSIDERED WHEN EVALUATING WHETHER A RETIREMENT PROGRAM CAN HELP PARTICIPANTS ACCUMULATE ENOUGH TO ACHIEVE RETIREMENT SECURITY?

Consider what is a realistic in terms of replacement income target for your plan, and whether your existing plan design impacts target replacement ratios. Also think about which segments of your employee population are at risk for not achieving their retirement goals-whether employees are utilizing asset allocation and target date funds, and whether catch up contributions are being maximized.

WHAT SHOULD WE LOOK AT WHEN EVALUATING PLAN FEES AND EXPENSES?

One of the more critical fiduciary duties is to completely understand plan fees and expenses, in terms of who bears the cost of plan fees and how fees are paid. Plan fees can range from administrative charges for plan services to investment fees and sales charges, including commissions, 12b-1 fees, brokerage account fees, investment fund loads (front end, back end, contingent deferred sales charges (CDSC), wrap fees and investment advisory fees. Fees also can include transaction charges paid by the individual participant.

When looking at the fees you are paying, establish an objective process to aid in your decision making. You should take into consideration the level of services you receive, or would like to receive, and also determine the level of responsibility and customized services you want, or would want your service provider to assume.

WHICH PLAN DESIGN FEATURES SHOULD I CONSIDER WHEN BENCHMARKING MY ORGANIZATION’S PLAN?

Plan design drives plan effectiveness. Typically, plan success is measured in terms of participation rates, deferral rates and overall asset allocation. Does your plan compare favorably to industry standards? Are your employees on track to meet their retirement goals? Beyond these factors, consider whether your participants are contributing at a rate that will meet their retirement goals for financial security, whether plan participants are receiving sufficient education to understand the provisions of their plan and the investment opportunities available under the plan, and whether plan education strategies are aligned with your plan’s demographics.