Doug Prince, Managing Director, The Prince Group of Stifel Nicolaus, began the conversation by saying that benchmarking is where everything should start; it helps you figure out where you are and what areas of the plan need the most work.
Prince said there are five areas that can be benchmarked individually: plan design, fees, participant benchmarking, investments, education, and service provider/vendor. His firm looks at about two of these topics at each quarterly meeting with a sponsor client. He noted that there are industry benchmarking guides to help the adviser and sponsor see where they stand.
What kind of things can come up in a benchmarking discussion? In a meeting focusing on plan design, Prince saw that his client did not have self-directed brokerage accounts, so he suggested looking at their peers in the competitive market spaces to see what they have. Another plan design benchmarking topic is retirement distribution, which is cropping up more and more frequently, Prince said. You want to make sure the plan design coincides with the overall philosophy of the plan, he said. One his clients only offered a lump sum; so at one of these benchmarking meetings, they decided to offer installment payments and other forms of distribution as well.Barbara Delaney, Principal, StoneStreet Equity, said that in her experience, most plan sponsors are unsure of where to begin the benchmarking process. She pointed out that sponsors should be aware that several companies gather data to use for benchmarking purposes.
Something as broad as “participant readiness” may seem hard to benchmark at first, Delaney said. But there are specific items to consider, such as the average deferral rate (she pointed out that the only tools that have moved the needle to date are auto-enroll and auto-escalate features). Once you have that figure, analyze it to see how it compares with other plans in your industry. She said it’s important to urge participants to get up to a 10% deferral rate. Other important figures to look at are the opt-out rate and the associated fees. Then it’s just a matter of comparing your plan’s details with other similar plans.
Mary K. Hollingsworth, Director - Client Communications, Product and Business Support, Wells Fargo Institutional Retirement and Trust, is in a position to see retirement plan benchmarking from many angles. She asked the conference audience a question: “Is your plan successful and how do you know?” Several answers were given, such as replacement income and participation rates. Hollingsworth said those were all valid, and she has also heard people talk about their investment performance or deferral rate as other indicators. The question then becomes - how do we bring all of that together?
She said we need to look at it in two parts – the plan success and the participant success. An important question to ask is, “What percent of your participants are on track for 80% income replacement?”
Hollingsworth said a recordkeeper should be able to help with that, since they keep track of their deferral rate, and the sponsor knows their salary.
In the end, benchmarking comes down to accountability, the panelists said. Someone needs to be able to point to the goals of the plan and who is responsible for achieving those goals.