Detailed Plan and Participant Analytics Can Improve Retirement Readiness

Defined contribution (DC) retirement plan sponsors can strengthen their plan governance and improve their plans’ return on investment by using detailed analytics that evaluate specific segments of their employee population based on age, job category, tenure and benefit structure, according to a Willis Towers Watson report.

The firm says the right analytics highlight those employees and groups most at risk, and allow plan sponsors to determine which participant tools and strategies best prepare employees for retirement.

Although 83% of plan sponsors in Willis Towers Watson’s 2017 DC sponsor survey cited retirement readiness as a top priority, their efforts don’t yet reflect that concern. Only 17% allocate time to discussing retirement readiness during committee meetings, noting that greater attention still goes to evaluation of investment managers and monitoring fund performance. Only one-third of DC plan committees analyze retirement readiness annually, and fewer than half assess readiness at least every three years.

According to the report, insufficient attention to retirement readiness may be compounded by a lack of information useful in setting objectives for improvement. Willis Towers Watson believes plan-wide statistics on mean or median participation rates, balances or contribution rates measure aggregate data on all participants but offer little in the way of insight into retirement adequacy and meaningful benchmarks for individuals or segments of the population.

The firm says more detailed analytics will help plan sponsors develop objectives and an overall plan strategy that foster retirement readiness in two key ways. The first considers those steps plan sponsors take on their own through plan design to establish participation, saving and investment. The second looks at the tactics used to motivate participants to take financial action, including improving behaviors to increase savings, tax efficiency, investing and spending.

Example in practice

Gregg Levinson, senior director, Retirement, Willis Towers Watson, tells PLANADVISER one client quarterly evaluates its DC plans’ metrics to assess the effectiveness of design, options, tools and participant usage as a way to measure potential outcomes. It is part of a larger wellbeing evaluation program.

Willis Towers Watson collects data from the DC plans’ vendors related to participant transactions including:

• Eligibility;
• Participation;
• Deferral rates/changes;
• Investment allocation;
• In-service distributions/loans; and
• Managed account/advice.

The firm presents the information to the client through an interactive DC dashboard designed to highlight key indicators and important changes.

The analytics finds that overall, plans are operating well, but there are some key areas of focus. For example, there is an inefficient use of plan investment offerings; there are too many single fund holders outside target-date funds and some participants use too many target-date funds. The analytics also shows a disparity between participants using managed account/advice services and those that do not. Those using the services have increased deferral rates, more efficient investment allocations, and lower in-service withdrawal/loan rates.

According to Levinson, these trends have been consistent, but the plan sponsor prefers to keep watch to gather a deeper trend line. However, the plan sponsor is already questioning what it is about the managed account/advice services that makes better participants. Did these participants start off better and therefore took advantage of these resources? How can this be translated to the population as a whole—should it?

Regarding inefficient investment allocations, the plan sponsor is asking: What’s the long-term impact, are messages driving this behavior, and are there structural changes that can improve it?