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How to Understand Retirement Plan Benchmarking as a Plan Sponsor

A survey conducted by PLANSPONSOR found that 55% of plan sponsors benchmark their retirement plan annually, while 11% benchmark every one to two years.

As a plan fiduciary, you have a duty to put your participants’ interests first and ensure that you are managing your roles and responsibilities at the highest level. One of the most crucial aspects of overseeing a retirement plan is evaluating and selecting service providers that meet the needs of the company and its employees.

Provider Benchmarking is the practice of monitoring, analyzing, and comparing your providers’ performance, reliability, and quality to other internal, peer group, or industry retirement plan standards. This process helps ensure you receive true value for your organization and employees. It also allows you to establish standards and goals from the inception of your provider relationships, track progress, and measure success at various intervals. In addition, benchmarking can assist in building stronger and more lasting partnerships and can provide insight into areas of opportunity for your Plan.

The Importance of Benchmarking Your Retirement Plan from a Fiduciary and Audit Perspective

  • Reasonableness of Fees:Benchmarking helps ensure that the fees charged for your retirement plan are “reasonable,” thereby meeting a stated ERISA mandate. High fees can significantly impact participant account balances over time - silently and methodically eroding account balances. Comparing your Plan's costs regularly to peers or industry standards allows you to determine reasonableness and fulfill a basic fiduciary tenet.
  • Optimizing Investment Options:Benchmarking allows Plan sponsors to optimize their investment lineup by reviewing asset classes offered and specific investment fund factors such as performance, volatility and expense ratios.
  • Improving Plan Design:Plan design may be the largest single driver of successful Retirement Plan outcomes. Benchmarking your plan design can help your organization identify potential “blind spots” in your current design, as well as assist you and your advisor in identifying industry trends. Further, improving your design (e.g., increasing match and incorporating auto features) may help attract and retain top talent.
  • Evaluating your Service Provider Capabilities: In addition to fees, it is important to understand the services received from your record keeper/administrator compared to their peers. A periodic formal RFP is important, not only from a fiduciary perspective but also to help ensure your organization continually receives quality, cutting-edge services. To that end, other considerations to consider from a qualitative benchmarking exercise include cybersecurity, technology, and payroll integration.
  • Recognizing Areas of Opportunity to Improve: Benchmarking is a crucial way that allows employers to see areas of opportunity by comparing their retirement plans with industry standards. This information also gives plan sponsors tangible data such as plan design, fees, investments, and services to review and compare to industry standards.
  • And Don’t Forget Your Advisor: There are databases that enable advisors to compare their fees/services to national and regional norms. A formal Advisor RFP from time to time is also a best practice.
  • Plan Audits: Most major Plan audit firms are now specifically asking about formal benchmarking practices during annual audits.

How Often Should You Benchmark Your Plan?

The Department of Labor (DOL) suggests that Plan Sponsors conduct a periodic review of their 401(k) or 403(b) plan, including a formal benchmarking process, at least once every three to five years to ensure that the plan continues to operate in the best interest of its participants. That is the recommendation by the DOL, but a more regular cadence of several aspects of your Plan can be beneficial.

If you’ve never benchmarked your retirement plan, contact our team for a complimentary review. For additional features to consider as part of your retirement plan, watch Retirement Plan Features Worth Considering in Every Plan.