Plan Success Beyond the Usual Statistics

Art by Katherine Streeter

According to Marc Howell, vice president, head of custom retirement solutions and intellectual capital at Prudential, defined contribution (DC) retirement plan clients are hungry for ways to analyze their plan performance beyond the usual statistics.

Howell says plan participation rates, average account balances and average deferral rates are always going to be significant measures for plan sponsors. Such numbers offer a bird’s eye view of whether a plan is moving in the right direction, but these figures should not be the only metrics used in rating plan performance.

Howell says employers should also be striving to identify whether their plan is working well for specific segments of the plan population that have more in common in terms of life stage and job function. Otherwise, a plan sponsor will be making decisions based on overall statistics that do not speak to the more intricate problems within the plan. As Howell points out, all it takes is a few participants with very large account balances, for example, to make the average account balance come out significantly higher than the median balance. Additionally, if plan sponsors exclude nonparticipating workers from their assessment of average balances, this also tips the average away from the true median rate, he says.

Doron Scharf, senior vice president and consulting actuary at Sibson Consulting, encourages plan sponsors to conduct a deeper breakdown of employee age groups, job functions and more. He notes that not all participants will fit nicely into one broad category, so it’s going to take some intellectual effort to really start building a sense of plan health beyond the averages. He suggests plan officials can start by slicing down the workforce into different cohorts, be it by salary versus hourly employees, location, job type or career stage. This will start to give plan sponsors a greater understanding of what is driving the average plan statistics.

“Often, employees who are in different stages of their life are having different sets of issues, and by looking at that you might be uncovering something that would be masked by looking at the averages,” Scharf says.

Jonathan Price, vice president with Sibson Consulting, observes how deferral rates tend to shift as participants reach certain life stages, especially as workers grow older and approach retirement. It’s not hard to imagine a plan that has an aging population and a high average account balance, but which is not optimized for supporting younger employees and getting them on the right track.

According to the Sibson Consulting experts, once a plan sponsor generates a more nuanced view of their plan participants, they can use this insight to build out highly targeted communications that speak to very specific, timely and actionable issues. Howell agrees, adding that when participants receive personalized information and guidance about improving their retirement readiness, they are likelier to take a positive action.

“Targeted communication can make a very significant difference,” Howell emphasizes. “Have those one-on-one meetings, and reach out to participants about their unique problems. This will also benefit the employer, because if they can get the plan design working well across the organization, this enables them to avoid issues with workforce transitions.”

“The ability to go a little bit deeper than looking at the total average of the plan is a big opportunity to help employees and in turn, help the plan,” Price concludes.