Missing the Mark?

A comparison of the results of the 2019 PLANADVISER Practice Benchmarking Survey and the 2019 PLANSPONSOR Defined Contribution (DC) Survey: Plan Benchmarking shows retirement plan advisers and plan sponsors each have a different way to gauge whether their plans are working well.

Plan sponsors and advisers were asked which of 11 metrics they use to measure plan success. There were two that both groups agreed on: participation and deferral rates. Ninety-two percent of advisers and 71% of plan sponsors said participation rate was the most important yardstick. Ninety percent of advisers and 60% of sponsors found deferral rates next most significant when determining plan success.

Generally, however, advisers indicated that plans need a better target than those two popular metrics provide. While they are a valuable starting point, in reality, they fail to reveal, e.g., whether participants are succeeding or recognize particular efforts the sponsor made to help them save more effectively.

One measurement getting much discussion, though not much plan sponsor attention, is retirement income replacement. Nearly two-thirds (63%) of advisers vs. 10% of sponsors employ this metric. The gap may narrow, though, as a provision of the recently passed SECURE [Setting Every Community Up for Retirement Enhancement] Act requires defined contribution plan benefit statements to include a lifetime income disclosure at least once during any 12-month period. As an aside, a consistent formula to measure income may be difficult to find, because providers each have different methods for scoring individuals.

Once there is a standard disclosure, though, will this become a widely used benchmark, or remain something plan sponsors see as outside of their purview?

Advisers could examine the take-up rate of an employer’s match to see whether participants appreciate their company’s generosity. And they could benchmark hardship withdrawals and/or loans to check for financial wellness.

To get the most from available metrics, advisers may want to teach their clients the value of setting success measures—then determine which metrics best ensure each plan moves toward its goal.