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Capital Ideas™ 
Investment insights from Capital Group

Categories
Plan Design
Three success metrics for your DC plan

You want your defined contribution (DC) plan to be successful—but how do you know if it is? While there are many ways to measure a plan’s success, we recommend starting with three fundamental metrics: participation rate, savings rate and investment results.


Focusing on these metrics is a way to gain clarity around the success of your plan and to prioritize areas where you have levers that can help improve performance. 


Getting started


The first step is to outline clear objectives for these metrics. Follow that goal setting with regular measurement and strategic, data-driven adjustments to make the plan stronger if it falls short of initial targets. 


Success metrics


Participation rate. It is best to strive for full participation. One of the most effective approaches to improving participation is to auto-enroll all new and non-participating employees annually. This will establish saving for retirement as the default for participants, who would need to take proactive steps to opt out of the plan. Reinforce auto-enrollment with participant education illustrating the importance of starting to save early and consistently contributing even small amounts to a retirement plan over time. 


Savings rate. When setting a savings goal, try aiming for 15% of employees’ compensation. Reaching this benchmark could significantly enhance investors’ retirement readiness. You can note the percentage of participants who land below the target and then study savings rates by age cohort, gender, tenure and compensation level. Consider approaches such as auto-escalation and establishing or increasing an employer match to boost savings rates. Auto-escalation, which increases the employee’s contribution percentage annually until a target rate is reached, can be an effective tool to help your participants optimize their savings. Also, track the percentage of participants who are contributing enough to the plan to receive the full employer match.


Investment results. Setting a broad goal for investment results is complicated because participants vary in terms of their life stage, risk tolerance and how their workplace DC plan fits into their overall retirement savings strategy. Still, considering the significant influence of investment results on retirement outcomes, plan sponsors can provide support through periodic investment re-enrollments.


In a re-enrollment, participants’ current balances and future contributions are invested in the plan’s Qualified Default Investment Alternative (often a target date fund), unless the participant opts out. Target date funds seek to invest in a mix of stocks and bonds that is appropriate for the investor’s life stage, becoming more conservative as the target retirement date draws closer.


For a successful re-enrollment, work with your recordkeeper on a communications plan that will explain the benefits and provide plenty of advance notice. Beyond the investment re-enrollment, periodically review the plan’s investment lineup, including benchmarking investment results and fees.


Setting up plan participants for success


As you track these crucial metrics, think about ways that you can enhance participant education, too. You can use your findings to tailor communications to different participant demographic groups. Ultimately, a successful DC plan supports positive retirement outcomes for its participants. Tracking key metrics, controlling what you can as a plan sponsor and emphasizing participant education can contribute to a more effective plan.


Learn more about
Plan Design
Participant Education
Long-Term Investing

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Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
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Although target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors' retirement goals will be met.
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