Do you ever wonder how your 401(k) plan stacks up against the best plans in the country? Does your company offer a plan that can attract and retain the best people?
Benchmarking your retirement plan is an easy way to find out.
There are two different types of benchmarking: comparative and aspirational.
Comparative benchmarking is simply comparing your plan against similar plans based on commonalities like plan size or industry. This is helpful when you want to make sure plan features like the company match and fund expenses are competitive relative to your peer set. In today’s labor market, this is increasingly important for recruiting and retaining top talent.
Aspirational benchmarking, on the other hand, operates from first principles, comparing your plan against an ideal rooted in the idea of promoting retirement readiness for all employees and reducing risk for the employer.
When we are asked by our clients to do aspirational benchmarking, we use five separate dimensions to measure the plan.
- Plan design: Is your plan taking full advantage of mechanisms and design provisions (such as auto-escalation) that can dramatically make a plan better?
- Fiduciary governance: Do you have fully documented policies and procedures for your plan committee?
- Vendor management: Does your plan committee understand your recordkeeper’s cybersecurity policy and the guarantees in case of fraud or breach? Is the committee aware of additional services your recordkeeper may offer? And are your recordkeeping fees reasonable?
- Investments: Does your fund menu balance traditional investment strategies with key behavioral finance concepts? And are your investment fees competitive?
- Retirement Readiness: What percentage of your employees are at risk of having insufficient retirement savings?
By looking at a plan across these five critical areas of plan success, we create a numerical score that enables plan sponsors to understand where they are right now, prioritize and focus on specific dimensions of their plans, and track progress over time. By definition, Blue Ribbon plans put most employees on track toward a secure retirement while simultaneously minimizing risk for the plan sponsor.
As a real-life example, Cerity Partners Retirement Plan Advisors was recently retained by a Florida-based law firm to evaluate their plan and make recommendations regarding best practices. After a thorough examination, we advised that the plan streamline its investment lineup, improve its plan design, and strengthen its fiduciary governance process, all helping to reduce overall costs. At the time, the firm’s plan had roughly $52 million in plan assets and 200 participants. After implementing our changes around strategic plan design, we also conducted a recordkeeper RFP which lowered fees. The client also accepted our recommendations to streamline the investment lineup and overhaul their fiduciary governance program, helping improve participant savings rates and mitigate risk to the firm.
In the end, our plan health consulting approach assisted our new client in reducing investment costs by 45%, recordkeeping costs by 50%, and advisory fees by 50%. In addition, working closely with the client’s employees, we increased the savings rate by 31%.
The net effect of these changes was that the client was able to increase their overall Plan Health Score™ from 50 to 85 in less than a year, making it a “Blue Ribbon Plan.”
To learn how we can do the same for your plan, let us conduct a Plan Health ScoreCard report for your organization.
Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security. For information pertaining to the registration status of Cerity Partners, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). For additional information about Cerity Partners, including fees and services, send for our disclosure statement as set forth on Form CRS and ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.