Sibson Consulting has created a DC Plan Scorecard that provides a framework for reviewing all aspects of defined contribution (DC) plans.
The scorecard is a tool for identifying which measurements to use for a particular plan because it requires selecting a level of importance for each metric according to a 5-point scale. Sibson’s defined contribution plan experts work with organizations and their retirement committees to help determine which metrics are most important for a given plan. Individual committee members likely prioritize these metrics differently, and the scorecard helps to align the fiduciary committee as a whole.
Using industry best practices, Sibson reviews and grades each relevant metric using the same 5-point scale. These grades will be determined based on a review of the organization’s defined contribution plan and will cover all aspects from plan design to distributions. An important aspect of this assessment is the assignment of target values that are not merely industry norms, but rather reflect objectives of the employer.
Comparing the assigned levels of importance with the determined grades can show where gaps may exist that need to be addressed, Sibson says. For example, a common issue with defined contribution plans involves how fees are allocated to plan participants. If plan fees are reasonable, but inequitably allocated among plan participants, the plan sponsor may still have fiduciary risk for not managing the plan correctly.
The scorecard can be used to collect year-over-year measurements that may highlight key trends and/or flag areas requiring course correction. Each organization’s choice of which DC plan success factors are most important is likely to change over time. Because the scorecard is customizable, it can be adjusted as the plan sponsor’s priorities change.
Information about the DC Plan Scorecard is detailed in a Sibson Consulting Spotlight report, “How Do You Define ‘Success’ for Your Defined Contribution Plan?” The report notes that plan participation rate, average employee deferral rate, percentage of employees taking advantage of the company matching contribution, and overall plan diversification among the investments are traditional measures of plan success. However, elements of plan design, fiduciary governance, ongoing administration and compliance, investment options, retirement readiness of participants and participant communications also are important to plan success.
The report can be viewed here.