Every year, plan sponsors pump millions of dollars into retirement plans in an effort to help participants retire comfortably when they want to. Gauging the return on investment (ROI) of these plans and determining whether the plan design is meeting desired results can be difficult. Prudential Retirement is attempting to facilitate both objectives with a new solution called PruNOW.
The patent-pending tool uses participant demographics and an in-depth analysis of an employer’s entire benefits structure to identify potential inefficiencies in plan design, while devising solutions that can be quantified in cost savings for the employer.
Marc Howell, VP of Custom Retirement Solutions, gave PLANSPONSOR some exclusive insight on the new tool.
“We used a little more than four million points of data to isolate and identify distinct variables that influence retirement decisions,” says Howell.
These variables include age, gender, amount saved relative to earnings, and even zip code. PruNow projects a participant’s household wealth, savings patterns, and retirement decisions based on how that data is reflected by others within people in that person’s zip code.
“Based on an in-depth analysis of millions of Americans and how they actually act, we are going to assume people retire in a similar pattern to the general population within that particular zip code,” explains Howell. “It’s [PruNow] based on the specific people in your organization and what their specific likelihood of retirement is.”
The tool analyzes this data against plan design to determine how much participants need to save to earn a comfortable retirement, while identifying potential plan-specific changes that could be made to achieve this.
“If employers don’t like what they’re seeing, we can help them custom design retirement programs that would influence some of those variables and decisions, primarily increasing savings rates to get participants in a better retirement position,” says Howell. “We can then come back to the employer and explain how much money they might save by making these changes.”
Howell says the tool uses demographic variables and actuarial techniques to form a model of an entire workforce moving forward in time. It also tracks employees throughout their careers taking note of changes in these key underlining variables. As participants near the general age of retirement, the system begins to assign probabilities for how likely they are to retire on a specific age such as 65 or 67.
“So for example, if it's projecting forward John Q. Public, based on their information, they may have a probability of retiring at age 60 of 8%, which then might increase to 11% at age 61 due to anticipated changes in their specific situation,” Howell explains. “These unique probabilities are applied at each age then to perform the additional calculations the system goes through to determine costs, retirement patterns across the entire population, etc.”
He notes PruNow can also identify areas of opportunity plan sponsors may overlook.
NEXT: Looking Beyond the Retirement Plan