Fulsome insights into employees’ retirement readiness require being able to access a greater range of participant data points, including information about personal savings and assets outside of participants’ defined contribution (DC) plans, according to retirement planning professionals.
Average participation and deferral rates are the most common metrics used to gauge retirement plan success, the PLANSPONSOR 2021 DC Plan Benchmarking Survey shows. While theses metrics provide a baseline from which to start, additional measures are needed for greater insights, explained Stephanie Hunt, retirement plan consultant at OneDigital Retirement + Wealth, and Daniel Peluse, executive director at Wintrust Retirement Benefits Advisors.
While participation and deferral rates are the easiest to measure, plan sponsors, recordkeepers, consultants and advisers must search for additive measures to complement baseline metrics, Hunt said during a PLANSPONSOR webinar, “Measuring the Success of Your DC Plan.”
“We also like to look at investment allocation,” she said. “A lot of the recordkeepers we work with have scatterplots that show by age how employees are investing.”
The data points help reveal whether participants have “too much allocation in fixed income, or are too aggressive,” Hunt added. “Sometimes folks get a little over their skis on their equity exposure.”
Plan sponsors are increasingly launching technology solutions to personalize retirement planning that participants can use to give employers and recordkeepers a better picture of their retirement readiness.
Hunt added that employee engagement rates—including website visits, transaction frequency, app downloads and use of available tools—are also used to determine what type of targeted education would likely be most beneficial to participants.
“Those are a few that we find can offer a little bit more insights besides just participation and deferral rate,” she said.
Another additive metric tapped for deeper insights to measure a plan’s success is how many participants are contributing only up to the amount of the employer matching contribution, Hunt added.
“[It’s] not only what are the average deferrals, but are they capturing the most that they can from the plan, and what plan design or what levers can you pull to help encourage those employees to get up to the match so they’re not leaving money on the table?” she said. “It’s free money, they just don’t always think of it that way.”
Peluse agreed that employee engagement should be used more often to measure a DC plan’s success.
“We look at that data with our clients annually,” he said. “The more engaged participants we have, probably the more beneficial that plan is to the plan sponsors for attracting and retaining key talent.”
These pieces of information help bolster employee retirement readiness when paired with education, Peluse added.
However, the entire onus for retirement readiness doesn’t rest with recordkeepers, plan sponsors and consultants. Employees must engage more frequently and be willingly and actively providing information to create a clearer picture of their specific needs and challenges, Peluse said.
“A lot of the retirement readiness measures don’t consider other factors,” Hunt said. “If someone’s married, a spouse may contribute to retirement readiness or there may be a pension plan with some other company; it doesn’t consider everything. These can’t always be that accurate but, still, it’s a jumping-off point to see how we can improve.”
Ultimately, greater insight stems from close and frequent employee engagement, and only participants can control that, explained Peluse.
“It takes someone to engage and put that information in and put in a spouse’s information or if there’s an inheritance,” he said. “It’s varying degrees of factors that come into play and help determine what that [retirement readiness] number is or if someone is on track for retirement.”
Hunt agreed and said plan sponsor information and metrics are “only as good as the information coming out from payroll,” that has been provided by the participants.
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