PANC 2012: What’s the Right Standard?

Benchmarking a retirement plan includes analyses of providers, investments and the plan itself, attendees at the 2012 PLANADVISER National Conference learned.

But it all boils down to participant readiness, so advisers must give plan sponsors easy-to-understand information, said Dan Peluse, corporate retirement director at Morgan Stanley Smith Barney.

Chad Larsen, president of Moreton Retirement Partners, said success is measured at the participant level. Participation and deferral rates are still important, but sponsors also need to measure whether employees will be able to retire. Advisers should educate sponsors on how much it costs companies when participants are unable to retire.  

According to Peluse, many tools measuring participant readiness do not take into account outside assets of participants and Social Security, so the industry needs more accurate information.  

Larsen said that other data available to use for benchmarking may be incomplete. For example, he said automatic enrollment is not helpful if participants cash out their balances when they leave their companies. Sponsors need to know how many participants cash out at retirement in order to change participant behavior.

According to Joseph P. Frustaglio, vice president of retirement plan sales, national sales manager at Nationwide, plan sponsors want to know how their plan is doing in relation to their peers' plans because these are the companies they are competing with for talent. Advisers can differentiate themselves by finding this information, he added.  

Larsen pointed out that the most comprehensive database of this information is the annual PLANSPONSOR DC Survey, and the Profit Sharing Council of America (PSCA) also provides some information. Advisers should look for data by industry and plan type.   

Fee benchmarking is also important for plan sponsors, Larsen said. He suggested looking to components of total plan cost to determine if fees are reasonable, and asking if fees are being allocated to participants in a reasonable fashion.  

Frustaglio suggested starting with the goals of the plan and looking at the value each product or service offers toward reaching those goals.  

Peluse added that nearly every provider can offer a benchmarking report that lists products, services provided and fees. Advisers can use this breakdown by other advisers to show plan sponsor clients what additional value they are offering.