2024 PLANSPONSOR Webinar: Plan Benchmarking

Whether it’s evaluating 401(k) plan fees or comparing a company’s compensation package against its competitors, plan benchmarking is a necessary exercise for sponsors to measure the success of their plans, according to speakers at PLANSPONSOR’s Plan Benchmarking webinar on December 12.

But before a plan sponsor even begins the benchmarking process, it is important to take a step back and evaluate the goals of the organization and the outcomes it is looking to achieve with its retirement plan.

Setting Guidelines

When working with her plan sponsor clients, Kathleen Kelly, a founding and managing partner in Compass Financial Partners, a Marsh & McLennan Agency Company, said the initial step is working on a retirement program’s guiding-principles document to help the plan committee determine what they should be benchmarking, on top of their fiduciary requirements.

“I think it’s important to remember that the value of benchmarking is that it is relevant and supportive of the goals and objectives seeking to be achieved,” Kelly said. “It’s not uncommon for us to begin working with a new client, and they have never had a philosophical discussion around the purpose and the role of the plan within their organization.”

For example, Kelly said it is important for a plan sponsor to ask if the company’s retirement plan serves as the “front porch” of its benefits program and, if so, is the plan achieving its objectives of offering a generous match? Kelly argued that this kind of thought-provoking exercise requires a plan committee to identify the philosophy and principles that are currently driving the retirement program, as well as what the future state of the program will be.

“I think this is especially important today because we’ve seen so much turnover in our plan committees, [and] oftentimes, the decisions that were made years ago were made by people who are no longer on the committee,” Kelly said.

Kelly said she also helps employers determine who their competitors are—or against whom they should be benchmarking—by providing a “heat map” of the competitive landscape. Sometimes competitors are within the same industry as the employer, or the company may be competing for new hires with major companies that have operations located geographically close to the employer. For example, a local or regional employer actually may be competing for talent with a national or global company, like Walmart or Amazon, that has a distribution center located in the same area.

If a company is looking to build a case to potentially increase its 401(k) match, for example, Kelly said her firm would build a heat map that compares the company match against 12 competing companies. She said this kind of analysis can inform many decisions.

How Benchmarking Informs Decisions

Judy Bobilya-Feher, the chief financial officer at Aunt Millie’s Bakeries, said benchmarking her plan’s funds and investment options has motivated the company to improve the investment lineup it offers by switching to different share classes with similar financial performance at a cheaper fee.

In addition, Bobilya-Feher explained that Aunt Millie’s has both union and non-union plans. Historically, she said the company likes to treat the two plans the same and allocate the total bucket of fees across the two plans. However, the union plan has grown much larger than the non-union plan, and after conducting a fee benchmarking exercise with the union plan against similar-sized plans, Bobilya-Feher realized that it was necessary to reallocate fees to be fair to both plans. As a result of benchmarking, the company pulled the cost of each plan out separately and charged the fees to each plan separately.

When Aunt Millie’s first implemented automatic enrollment, Bobilya-Feher said the company had many discussions about what the default rate should be, and benchmarking was instrumental in the decisionmaking process.

“We did a lot of benchmarking of the different auto features, and in one committee meeting, we adopted a lot of [those] features,” Bobilya-Feher said. “We’ve evolved them over the years with sweeps to re-pick people up that come off [the plan].”

Thayla Bohn, a senior vice president of corporate and human resources at American Fidelity Assurance Co., said her company looks closely at the plan’s match formula and vesting schedule. The company used to offer a defined benefit plan, which has since been closed to new hires. For new employees joining the company, Bohn said it is important that they are offered a competitive match on the 401(k).

“One thing that we do try to accomplish with all of our plans is to be an employer of choice and also to retain quality talent,” Bohn said. “In order to do that, you need to look at what the competitive landscape is, and particularly for those who no longer have the DB plan, we really had to reevaluate and position our plan as part of the total benefits package.”

Benchmarking Beyond the 401(k) Plan

Bohn added that American Fidelity frequently benchmarks its compensation against its competitors, as well as benchmarking its supplemental plans and executive deferred compensation plans. She recommended conducting employee surveys to better understand the kinds of benefits in which employees are and following up with a benchmarking exercise to see if a certain benefit would make the company more competitive.

“The company has to decide, where do you position all of these benefits?” Bohn said. “Where do you get the most bang for your buck? What are your employees really valuing? Just because one or two people say these are important [benefits] to be [offering], that may not really be the things that the [whole] colleague base really cares about.”

Kelly said while plan sponsors typically focus on benchmarking their default rates and their match formula, it is important to benchmark other aspects of the plan, such as policies for plan loans and hardship withdrawals. If a plan’s loan or withdrawal rates are significantly higher than their peers, Kelly said the committee members should reflect on what steps they can take to enhance overall financial wellness.

Moving forward, Kelly argued that lifetime income will likely become another aspect of the benchmarking process, as more plans look to add some form of guaranteed income feature to their retirement plans.

The full recording of the webinar is available here.