PSNC 2013: Creating a Successful Retirement Plan

Which way you ought to go depends a good deal on where you want to get to, according to the Cheshire Cat from “Alice in Wonderland.”

During a panel discussion about plan sponsors’ goals and best practices for gauging plan success at the PLANSPONSOR National Conference, attendees responded to a series of questions about their benchmarking practices. Roughly 100 plan sponsors participated in the live-polling event, the following are their responses: 

  • Do you have a goal for your retirement plan? Yes: 49%; No: 51%;   
  • Do you have a definition of success for your retirement plan? Yes: 18% ; No: 82%;    
  • Do you use plan participation rate as a retirement plan benchmark? Yes: 80%; No: 20%;   
  • Do you use deferral rate as a retirement plan benchmark? Yes: 82%; No: 18%;   
  • Do you use participant retirement readiness as a retirement plan benchmark? Yes: 14%; No: 86%.   

Hyun Swanson, manager of benefits education for the University of California, a finalist for PLANSPONSOR’s Plan Sponsor of the Year award in the 403(b) category, said she uses retirement readiness as a benchmark, with 80% replacement of preretirement income as the goal, adding that her efforts revolve around retirement adequacy and financial wellness. The University of California developed a portal for participants that integrates separate streams of information, including pension information and voluntary savings. Swanson described the tool as a “GPS” for participants, saying many know where they need to go, and the tool tells them how to get there.  

A second live poll asked attendees about their efforts to educate participants. Forty-five percent said their participant educational campaigns are retirement-specific; 19% said they focus on financial literacy or financial wellness; and 35% said they include both. Of their educational meetings, just 6% said they offer only one-on-one sessions; 36% reported having exclusively group meetings; and the majority (58%) offer both. Less than half (43%) said they provide targeted education to their participants—by specific demographics, such as age group—and 57% reported they did not do so. 

Ed Grass, vice president and treasurer for North America at Sanofi, PLANSPONSOR’s Plan Sponsor of the Year in the Corporate 401(k) >$50MM category, said  sponsors should use their definition of success as the metric by which they measure plan performance. His company’s definition of success stems from the understanding that the defined contribution (DC) plan will be the main source of retirement income for their participants. The goal is success in retirement, giving employees a defined benefit (DB)-like benefit from that plan. He said the company aims for the plan to be simple and easy to use, and it should help participants make the right choice. He encouraged plan sponsors to flip their focus, and drop participation and deferral rates as a measure of success in favor of retirement readiness.  

Swanson agreed, saying she had already seen positive results from a retirement-readiness focus. Although they had previously only sent out annual retirement readiness scores, individual ratings are always available now through the portal. She said participation rate, though they do try to improve it, is not a priority.  Instead, the Web portal enables the University of California to measure action, such as visits to individual pages and how many people use the “Road Map to Retirement” tool.  

But what, exactly, does “retirement readiness” mean? Before plan sponsors can calculate these scores for their participants, they must settle on an adequate definition. Grass said the percentage of replacement income an employee will have in retirement is one factor. The best ways to boost savings, he said, are to save more, invest more aggressively or move the target retirement age. Grass said his company wants its participants to focus on the age at which they want to retire and use that to determine their target deferral rate.  

Swanson advised plan sponsors to take advantage of their recordkeepers’ or consultants’ expertise. They know the specific concerns, constraints and goals of the plan and company, she said, so they can pull out the most appropriate metrics against which the sponsor can measure success. These metrics might change, she noted, but the sponsor can look for points of underperformance, good performance, and how and whether the current educational campaign is working. Swanson stressed the importance of knowing what works for and matters to the company and participants when making these evaluations. “We want to get people to take a positive step,” she concluded.