Cover | Published in November 2012

Looking to the Stars

The concept of looking to the stars to chart a course is certainly not a new one. Since ancient times, people have relied on astronomy in place of compasses and maps.

By Alison Cooke Mintzer | November 2012
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Wesley Allsbrook

The PLANSPONSOR Defined Contribution Survey, now in its 17th year, acts as a North Star of sorts for retirement plan sponsors—offering direction by setting the standard in identifying plan-design trends because of its breadth and depth. Whatever their current method(s) of assessment and evaluation, plan sponsors have long appreciated the reality that, while every program may have unique circumstances and constraints, there is value in being able to compare your retirement plan with a valid set of peers, if only to ensure your design remains competitive.

Roughly 6,000 responded this year—a decrease from last, maybe because we were fielding this at the height of fee disclosure activity when plan sponsors struggled to find time to complete our questionnaire. The demographics of the respondents were equal parts micro (36.5% of plans have less than $5 million in assets) and small plans (36.2% have between $5 million and $50 million in plan assets). Of the rest, 12.8% have between $50 million and $200 million in assets, and 14.4% have more than $200 million.

Perhaps the most significant finding in this year’s survey was the general decline in plan sponsor satisfaction. In fact, overall satisfaction is down across virtually all (22 of 23) categories of service. The only area to see an increase was participant fee disclosure, and that likely was a byproduct of the environment more than anything else.

Still, while satisfaction is down, we do have standouts—“stars” of a sort—in our Best in Class tables, which offer plan sponsors a way to see which vendors excel at servicing plans of different sizes. On the pages that follow, we show the vendors rated highest by their plan sponsor clients in various sponsor and participant services. 

Room for Improvement 

Despite the progress seen with defined contribution (DC) plans across many of our statistics, there is still plenty of room for improvement—especially in preparing employees and plan participants for retirement. Overall, 72% of respondents either “agree” or “somewhat agree” with the statement: “Our organization has an obligation to help participants plan for retirement.” However, although companies might believe they should help employees plan or save for retirement, the desired outcome—retirement-ready employees—has yet to occur. Similar to the results seen in the Employee Benefit Research Institute’s annual Retirement Confidence Survey, only 21% of plan sponsors “agree” or “somewhat agree” with the statement: “Most of our employees will achieve their retirement goals by age 65.”

Also, for all the talk in the industry about redefining benchmarks, the words have yet to resonate with our plan sponsor respondents. In fact, 29.6% still say they have no formal plan-success measures. Of the majority who do attempt to calculate the success of their plan, participation rate (67.9%), deferral rate (29.5%) and the percentage of participants saving up to the match (20.7%) are still the most common data points. Even with the industry focus on projected retirement income, only 3.5% of plan sponsors report using that in their assessments.

Based on the average and median account balances and deferral rates, it might be a good thing many plan sponsors do not benchmark against projected retirement income. With an average account balance across all plans of $63, 180 (median of $50,000), and average and median deferral rates of 6.1% and 6%, respectively, most participants seem far from a healthy retirement income replacement ratio.