What gets measured gets managed. What gets managed…gets better.
The exercise of benchmarking a U.S. defined contribution plan against other, similar-sized plans can secure deeper advisory relationships with your existing plan sponsor clients and also open the door to new ones.
When you introduce the benchmarking dialog, you’re helping DC plan sponsors put a practical perspective on how their plans are doing today. You’re also providing food for thought on what might make their plans more effective in the future.
This is especially helpful for plans that may not have the kind of extensive, dedicated in-house retirement benefits staff that many of the largest DC plans have. Frequently, other plans rely on company executives who have to wear many hats¾oftentimes it’s the CEO doing the heavy lifting. In many cases, your advice and assistance become instrumental.
Benchmarking helps plan sponsors stay on top of the evolving needs of their participants as well as the evolving capabilities of the retirement services industry. It also bolsters a plan sponsor’s standing as a responsible fiduciary¾as do investment policy statements or other documents that detail a DC plan’s mission and progress toward stated goals.
But it’s the details of benchmarking that make the difference.
It’s Not Just About Fees
When we start the benchmarking discussion with plan sponsors, they often think it will be a great way to get a handle on fees. That’s certainly important, but good benchmarking is much more. It’s a pragmatic strategy for assessing all the major components of a plan¾fees, investments, communications, recordkeeper services, fiduciary issues, plan participation levels and other plan goals.
The key to good benchmarking starts with a large enough database to make sound comparisons across a wide range of plan sizes. We conduct surveys with over 1,000 plan sponsors with responsibility for plans ranging in size from less than $1 million in assets to more than $500 million. And we ensure that there’s adequate representation at all levels, because different-size plans often have different issues and priorities.
For example, we asked survey respondents about which issues worried them the most. The overall top response was that participants don’t know how much they need to save in the plan to meet retirement needs. But more sponsors of the largest plans (with $250 million or more in assets) chose this answer than sponsors of smaller plans (with $10 million or less in assets). On the other hand, fees weighed more heavily on sponsors of smaller plans than on those with more than $10 million in assets.
Benchmarking often brings issues into the open, where the “why” and the “how to improve it” can be fully explored. It provides context to identify top plan priorities¾especially if they weren’t recognized previously as top priorities. Benchmarking helps plan sponsors take a step toward targeted actions that can meaningfully improve the plan and help them fulfill their fiduciary obligations.
Investment Menu: A Central Topic Where You Add Value
Benchmarking can prompt deeper discussions on many topics between plan sponsors and their financial advisors or consultants (collectively referred to here as “advisors”). Nearly 80% of plans with $50 million or less in assets use an advisor, and the most valued aspect of that relationship is the quality investment advice plan sponsors receive.
While much of that advice may be concentrated on the selection of investment options, benchmarking can help plan sponsors determine and identify whether they have too many or too few options, and whether the plan’s “freedom of choice” is actually helping or hindering the retirement outcomes of participants.
In our surveys, nearly 60% of plan sponsors feel they offer the right number of investment options in their plans. Another 24% feel their plans need more. But what is that “right” number?
About one-third of plan sponsors feel that five to 10 options is the right amount, and another one-third say 11 to 15. But some plans have fewer and others have 20 or more. When you conduct a benchmarking comparison, plan sponsors may alter some preconceived notions and put their DC plans on a better track for the future. These discussions also help plan sponsors weigh the merits of adding such features as automatic enrollment and automatic escalation, selecting a qualified default investment alternative and improving their plan’s communications.
Your existing plan sponsor clients will appreciate the benchmarking exercise¾it says a lot about how much you bring to the table. And benchmarking is a great prospecting door-opener: most every plan sponsor will want a peek at what his or her peers are doing.
For both groups, you not only help map out the areas to assess and the way to gauge their plan’s progress; you also act as a sounding board for helping improve the plan and create better outcomes for plan participants.
Craig Lombardi is head of Total Retirement Client Group Sales at AllianceBernstein.
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