You hear a lot of talk these days about measuring plan health, retirement readiness and plan outcomes.
Realizing that each plan can have its own measure of success, in this week’s NAPA Net reader poll we asked how your plan sponsor clients measure plan success — and how that compares with the measure(s) you use.
Participation, Rated
Nearly 4-in-10 (37%) of this weeks’ respondents said that participation rate was the measure of success for their plan sponsor clients. However, the second-most cited response was projected retirement income replacement rate(s) — though it was cited by only 17%.
The deferral rate of various demographics (highly compensated versus non-highly compensated) was third-most cited, at 12%, and projected monthly retirement income was fourth (8%). Finally, participants saving to the level of the match, plan design feature benchmarking and — well, no particular method of measurement rounded out the responses.
Income Oriented?
The picture was quite different from the advisor perspective. The most cited measure used by survey respondents was projected retirement income replacement rates, cited by nearly 42%, and the second-most cited response (21%) was projected monthly retirement income. As one advisor noted, “anything that gets measured can be improved, so I love to see plans at least measuring something, but in my experience the replacement of income at retirement is the best way to improve the entire country.”
Plan design feature benchmarking (12%) rounded out the top three, with participation rate, deferral rates of various demographics, increase in deferral rates and plan design feature benchmarking rounding out the responses.
Measures Measured
Nearly 55% of respondents said their recommended measure had changed over the past five years; just under 17% said it hadn’t. Among those had shifted, the move had clearly been toward projected retirement income, and that shift was clearly enabled by the advent of new technologies. One advisor explained, “Our measure has migrated from simple plan participation, average and median contribution rates to projected monthly income. This migration is due primarily to our increased use of available technology to "crunch the numbers" on income replacement.” Another said, “Technology has allowed us to shift to measuring success for plans by way of determining who is fully funded versus the underfunded group and then measure progress. Five years ago, we were just beginning to do this work, today it is a primary deliverable.”
Other respondent insights:
“Every plan has its own metrics, making it difficult/impossible to use a check-box approach. I look for the weak spots in each plan, and solve for that; success for one plan may be completely different for another.”
“In the past, there was so much focus by employers to compare fund performance and fees to determine if they had a ‘good plan.’ But a cheap lineup of high performing funds won't help if employees aren't utilizing the plans.”
“Plan utilization needs to be addressed. Above and beyond participation, we need to think about how Plan sponsors can utilize all the provisions in a qualified plan to promote and provide retirement readiness for their employees.”
This week’s Editor’s Choice goes to the reader who said this: “I find it interesting that most of the market discusses retirement readiness, but still places a lot of the responsibility on the sponsor or participants to actively participate when it has been demonstrated time and again that clients need to have as much one for them as possible. Will be interesting to see if the market will adapt accordingly or, in five years will it still be about investments (nothing really ever changes).”
Thanks to everyone who participated in our survey!
