Benefits

A Closer Look at Plan Health

Diagnosing key components of plan health and embracing proactive administration are crucial in ensuring retirement readiness for all participants. 

By Javier Simon editors@plansponsor.com | June 09, 2017
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As defined benefit (DB) plans shrink in number and the future of Social Security benefits dips further into uncertainty, defined contribution (DC) plans and individual retirement accounts (IRAs) are becoming the primary tools driving America’s retirement security.

However, many Americans are behind on retirement readiness. More than half (52%) of households are at risk of not being able to maintain their standard of living in retirement, according to a recent study by Prudential and the Center for Retirement Research at Boston College (CRR).

And with a heightened scrutiny on fees and fiduciary responsibility, it’s becoming increasingly important for plan sponsors to ensure their participants’ retirement readiness and maintain a healthy plan.

Sean McLaughlin, senior vice president, head of client relations and business development, Prudential Retirement, tells PLANSPONSOR that a major component to any healthy plan is “the right plan design for your participants.”

Features such as auto-enrollment have been among the biggest drivers of higher participation, according to Wells Fargo’s study “Driving Plan Health 2016.” Still, the Plan Sponsor Council of America (PSCA) found that the most common auto-enrollment salary deferral rate is 3% of pay. “We recommend closer to 6%,” says McLaughlin.

While some sponsors may fear this would reduce participation rates, volumes of evidence suggests otherwise.

Wells Fargo’s data indicates that plans which have auto-enrolled participants at a deferral rate of 6% averaged 87% participation rates. The figure is 83% for those that auto-enrolled at 3%. The firm also notes that opt-out rates “do not vary substantially from lower to higher default deferral rates,” and that plans with lower default deferral rates naturally have overall lower average deferral rates.

NEXT: Plan design and plan health 

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