To be successful, plan sponsors must address a few key questions about their plans:
With clear objectives, regular measurement and strategic adjustments, a plan sponsor has the tools to influence participant outcomes.
Focus on three key metrics and action steps to gauge your plan’s success. Note that each plan should develop its own set of goals.
1. Participation rate
Strive for 100% participation. Reach for this by auto-enrolling:
2. Savings rate
Consider setting a savings goal, such as 15% of compensation. Note the percentage of employees who fall below this goal, and examine savings rates from multiple angles, such as:
Consider tactics that could increase rates, such as:
3. Investment results
Determine whether participants have results comparable to those of the plan’s qualified default investment alternative (QDIA). Evaluate both the average results for participants and differences among demographics.
Seek to improve results by:
For the defined contribution system to be a complete retirement program, it needs to address both the saving and spending phases of retirement. Keeping retirees in the plan can be a win-win for both sponsors and retirees.
Retirees benefit from continued access to low-cost investment options as well as fiduciary oversight. Sponsors benefit from the boost in plan assets and therefore economies of scale.
Support keeping retirees in the plan by:
To help oversee implementation and measurement, plan sponsors can partner with outside consultants or financial professionals on the plan design and investment menu issues.
Filling in the gap between where the plan is now and where the sponsor wants it to be involves constant measurement and continuous improvement. If the plan falls short of its initial success objectives, sponsors may want to take additional steps to make it stronger. These should then be measured — repeatedly and regularly.
Concerns about participant retirement readiness have driven many plans to take steps such as offering participant education to improve decision-making. The results of such efforts are mixed, because they rely on participant action.
Instead, plan sponsors can help improve participant outcomes by focusing on the things they themselves control.
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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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