Products November 29, 2011

Fiduciary Benchmarks Rolls Out Plan Design Optimization Tool

A recently introduced tool from Fiduciary Benchmarks seeks to help plan sponsors optimize their plan design and improve their participants’ retirement readiness.
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The Plan Design Optimization Report, introduced earlier this month, has three main steps: 1) calculating the retirement readiness ratio of a plan’s median participant, 2) examining a chart of all eligible participants’ retirement readiness ratio and 3) putting these statistics through an algorithm to determine where plan design improvements can be made.  

The algorithm behind the Plan Design Optimization Report takes into account every eligible participants’ age, compensation, deferral rate, investing behavior, social security entitlements and any supplemental savings or retirement income. The service uses the last discrimination test performed for the plan to obtain compensation and deferral information for eligible employees along with the latest investment holdings of each employee and a short questionnaire that reflects the company’s specific attitudes about retirement savings and investing.  

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Castle Rock Investment Company (CRIC) is the first RIA to implement the tool with a sponsor client. 

The report “shows plan sponsors how prepared their employees are to retire successfully,” Michele Suriano, president of CRIC, said to PLANADVISER. “The second element is the optimized plan design suggestions on how to increase the number of employees that can retire successfully while maintaining the same level of employer contributions, whether the employer makes a contribution or not,” she added.  

Suriano has recently completed using the Plan Design Optimization Report with her client, Platte Valley Companies of Scottsbluff, Nebraska.  

“In the case of Platte Valley Companies, they were making a profit sharing contribution of 6%.  Effective January 1, their plan design will change to a 3% Qualified Non-elective Contribution (QNEC), with a 50% match on the first 5% and 150% match on the next 1%.  They increased the overall company contribution from 6% to 7% after seeing the impact it would have on their employees’ retirement readiness,” Suriano explained.  

 “The easy ideas are to introduce automatic enrollment and automatic escalation if those design elements are not part of the plan yet.  The more complex calculations show the plan sponsor how to maximize the effectiveness of the employer’s contribution and provide an estimate of the impact of the different designs,” she said. 

For more information, contact Craig Rosenthal at 203‐405‐1853 or crosenthal@fiduciarybenchmarks.com.  

Data & Research November 29, 2011

401(k) Sponsors Increasing Focus on Investments

A PSCA survey found that while companies are in the process of restoring contributions, they are also increasingly focused on plan investments.
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The Profit Sharing/401(k) Council of America (PSCA) found that half of plans that suspended their matching contribution in the last four years have fully restored it.  Of all plans reported on, 66.7% have maintained their matching contribution, 12.1% increased their match or added a matching contribution, 7.3% have fully restored suspended or reduced matches and 13.9% still have suspended or reduced matching contributions.   

PSCA contends that companies are focused on plan investments during this time of economic volatility: 63.8% of plans changed their investment lineup in the last year, and 56.2% changed their investments in 2010; up from 19.7% in 2009.   

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David Wray, president of PSCA, says this shift is “dramatic.” “That so many plans sponsors are reviewing and reworking their investment lineups demonstrates the importance they see in delivering the very best investment opportunity as part of the 401(k) plan benefit for their employees, especially in these unusual times,” he said.   

(Cont...)

Companies continue to help their employees understand their plans and investments, according to PSCA’s survey, 401(k) and Profit Sharing Plan Response to Current Conditions. More than half of plans increased employee education efforts in 2011, and 43% provided education specifically on market volatility.  

Eight percent of plans reported they added an automatic enrollment feature to their plan in the last year.  Nearly one-quarter of plans monitor whether participants are on track for retirement, including more than 40% of large plans. Almost 40% of plans reported an increase in plan participation, up from just 3.9% in 2009.  

The survey was conducted in October 2011 and includes responses from 523 401(k) and profit sharing plan sponsors from across the country. The full report is available here.

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