How Often Should Companies Benchmark Their Retirement Plan?
Benchmarking can protect plan fiduciaries, reduce plan fees and maintain the quality of service and advice participants deserve!
1. “How often do you shop and compare your company’s health insurance plan with other provider plans?”
2. “Do you go years before shopping and comparing your personal car insurance rates with the rates of other providers?”
“Annually” and “No” are the most frequent answers people give to these two questions. With that in mind, why would you not also shop to compare and request bids on your company’s retirement plan on a regular basis? This is what we refer to as “Benchmarking your Retirement Plan” and the Department of Labor (DOL) recommends benchmarking about every three years.
As plan fiduciaries, it is important to remember that Section Plan of the Employment Retirement Income Security Act (ERISA) imposes high standards and provides that fiduciaries gather the information necessary to assess the “reasonableness” of fees paid for services by both the company and the participants. It also highlights the amount and the quality of the services they provide are commensurate with the fees being paid. Benchmarking your retirement plan will help protect against possible fiduciary breaches, disgruntled employees, and legal hassles.
Benchmarking is not just about fiduciary protection. Plan design features and participant education have a huge impact on retirement savings for participants, contributing not only to the success or failure of their retirement readiness, but also to the overall value of a company’s retirement plan as an employee recruitment and retention tool.
Regularly benchmarking your retirement plan is not only a DOL “best practice” – it is just good business. Conducting an independent RFP can result in a thorough review of features and fees. It can, however be a time-consuming process requiring senior staff, resources and attention. We recommend plan sponsors retain an independent plan consultant (not the broker) to do a complete benchmarking analysis on the company’s behalf. A truly independent analysis will provide the plan sponsor the cleanest and most unbiased look at their present situation as well as propose multiple alternatives to consider.
In preparing to benchmark your plan, it’s important to consider the following in order to maximize the benefits:
- Use your most up-to-date and accurate retirement plan data, including plan level and investment expenses, investment performance and services provided by your current record keeper, administrator, and plan advisor.
- Compare the retirement plan in a relevant context: Plans of similar size, type, design, location, and industry.
- Don’t forget to consider the value provided! It can be reasonable to pay higher fees if a plan is receiving more or higher-quality services or is attaining higher participant success measures than similar plans.
Regular benchmarking of retirement plan costs and performance can go a long way to protect plan fiduciaries, reduce plan fees and maintain the quality of service and advice participants deserve.
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Hagan Newkirk | Plan, Invest, Live
Central Arkansas Corporate Office
6235 Ranch Drive
Little Rock, AR 72223
Phone: (501) 823-4637