A panel at the 2013 PLANSPONSOR National Conference, moderated by Paul D’Aiutolo, institutional consultant and retirement plan consultant for the D’Aiutolo Institutional Consulting Team, discussed best practices for sponsors when evaluating their plans.
At the beginning of a new benchmarking project, plan sponsors should ask themselves: “How did we get to where we are, and where do we want to go?” said David Hinderstein, president of Strategic Retirement Group. When considering the best way to evaluate a plan, he added, sponsors should keep in mind what their plans are trying to achieve and customize their benchmarks accordingly. What are the guiding principles of the organization? Does that attitude reflect what is being done with the plan? Plan sponsors should look to see if that data is consistent first, he said, then reaffirm or determine new plan objectives.
Jennifer Flodin, managing partner at Plan Sponsor Advisors, noted that fees and services are the only things fiduciaries must benchmark, but what your fee benchmark shows can be complicated. Many times a plan’s total fees may be “reasonable,” but that does not mean there is no room to negotiate for lower costs.
She clarified that plan sponsors should not aim to have the cheapest plan, but they should be aware whether there are any cost-drivers that do not actually add value to their plans or positively impact participant behavior. Hinderstein agreed, saying: “Reasonable is not enough. There’s room to improve.”
Try an Avatar
According to Michele Suriano, president of Castle Rock Investment Company, however, fees have very little impact on participant outcome, compared to deferral rate. One tool she favors when measuring plan success: a median-participant “avatar.” She creates a composite representative of a particular plan, taking into account the median age, salary, deferral rate and account balance of that specific population. Suriano then evaluates the avatar against the National Savings Rate Guidelines for Individuals. If there is a difference between the median and target deferrals, she says, behavioral finance techniques can be applied to raise the rate.
Asked about how they envision the “ideal plan of the future,” Flodin answered that all plan metrics should revolve around what the participant outcome is going to be. Hinderstein added that cost and design should be more integral to the organization. Suriano said the plan should simply enable participants to retire
Retirement plans have become a social issue, Hinderstein said. All of us will have to pay for it if we fail.