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.
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 firstname.lastname@example.org.