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Traditional Measures (Still) Matter Most, But…

Industry surveys continue to indicate that while plan outcomes are increasingly part of the focus, they’re rather far down the list of plan success measures – so what are NAPA Net readers (and their plan sponsor clients) using to measure plan success?

Looking at the range of possible measures, it is perhaps not surprising that the traditional gauges of participation and deferral rates were cited by nearly everyone (96%). Indeed, in the Plan Sponsor Council of America’s 60th annual survey, a whopping 89.6% of plans cite participation rate as a benchmark to determine plan success – and even more (93.2%) of the largest plans rely on that gauge. Deferral rates were a distant second (72.6%).

Outcomes Oriented?

Nearly three-quarters (74%) said the number of workers maximizing the match was a measure, but the big difference was in outcomes. Only a quarter of plans in the PSCA survey used that as a benchmark, but among respondents to this week’s reader poll, roughly two-thirds (65%) included participant outcomes. That said, one reader explained: “We're trying to get the focus to move from participant rate and average deferral rates to participant outcomes.”

Approximately 4 in 10 looked to average account balances, and about a quarter cited attendance at education meetings or utilization of advice tools. A mere 17% mentioned employee surveys.

Among other criteria cited were:

  • Cost

  • Percentage of participants who have logged in to their account

  • Low utilization of loans and hardships

  • Income replacement ratio

  • Engagement with non-advice tools as well (especially replacement ratio calculators)

One respondent noted that the measure was “what the plan sponsor defines as success, i.e., using benefits dollars wisely, staying in budget, etc.”

However, when asked to filter that list of possible measures to a single, primary measure, participant outcomes slipped to third, cited by just 21%, distantly following participation rate (51%), and just behind average deferral/savings rate (28%).

One reader explained, “Although projected monthly income at retirement is being viewed, plan sponsors don't view it as reliable information for gauging plan success. Reasons: employees have balances in other plans or may have had short service with the current employer. Also, these projections provided by record keepers often don't include the employer match (when is noted as a ‘discretionary match’ in the plan document). Even if the discretionary match formula has been historically consistent, the record keep won't use it. Also, the projections often don't include the impact of automatic escalation.”

For the most part those gauges hadn’t moved in the past two years; 30% said they hadn’t, and another 47% said that, while for some plan sponsors it had, for most it hadn’t. However, 17% said it had changed. And one reader responded, “Yes and no. It’s still the easiest thing to point to but we’re starting to have better conversations about other aspects of the plan (outcomes, education uptake).”

Advisor Success Metrics

Plan success is one thing – but what about how plan sponsor clients are measuring advisor success? Perhaps not surprisingly, fees/expenses topped this list, noted by 78% of this week’s respondents. There were, however, other measures including:

65% - participation rate
64% - investment performance
56% - participant outcomes
52% - average deferral/savings rate
30% - number of workers maximizing the match
26% - attendance at enrollment meetings
13% - average account balances
11% - utilization of advice tools
9% - employee surveys

Also noted were – note that the “f” word came up a lot:

Fiduciary protection
Fiduciary leadership
Fiduciary oversight and compliance
Protecting the fiduciaries – helping them see their blind spots
Custom goals and results
Tying back to what the plan sponsor defines as most important in some numerical or measurable way.

But as for a primary measure, tradition again rose to the top, but look what came in #2:

44% - investment performance
21% - participant outcomes
17% - participation rate
12% - fees/expenses
6% - average deferral/savings rate

Reader Comments

We got some interesting comments this week (as we generally do). Here’s a sampling:

  • Measuring outcomes has long been a priority for me, but requires technology support from recordkeepers. In the past couple years, more and more recordkeepers have developed capabilities in this area.

  • The big trend we are seeing is in levelizing fees – stripping out revenue sharing or using some other method of making sure that all participants are the paying the same costs for identical recordkeeping and administration services and not paying separate amounts just based on the funds in which they are invested.

  • Recordkeeping reports and annual reviews spell out what to care about just as much as advisors telling plan sponsors what success means...

  • I think a key measure for employee is how close they are to funding their replacement retirement income.

  • Benchmarking is the most used measure of success because it is tangible to the plan sponsor; it fits our cultural norm of comparing ourselves to others to judge success. Unfortunately, participant outcomes are nice in theory, but the reality is most plan sponsors cannot or choose not to keep up with former employees to determine whether or not the 401(k) plan helped them achieve positive retirement outcomes.

  • It takes a village; the plan sponsor and advisor must be on the same page in determining what is important to their specific plan, then designing the plan and the communication efforts to drive the desired outcome. Only then can you measure actual results vs. desired goals, and be willing to adjust as necessary.

Thanks to everyone who participated in our weekly NAPA Net Reader Poll!