Administration January 2, 2025

Retirement Plan Benchmarking: ‘More Art Than Science’

Experts say ongoing monitoring of retirement plans to ensure they maintain competitive offerings should be more nuanced than merely looking at costs and investment performance.
Reported by
Art by Mar Hernandez

How does your company’s retirement plan stack up against its peers? For Jamie Curcio, the process of evaluating and benchmarking everything from fees to employee participation is as individual as the company itself.

“There are a lot of organizations that do fee benchmarking, and it’s ‘Let me just go look in my database,’” according to Curcio, co-founder and managing partner of Deerfield, Illinois-based Curcio Webb. “There’s so many factors, and if you’re comparing a certain plan to other plans, you need to understand the complexity of both the plan that you’re trying to benchmark and the comparator plans—benchmarking is more of an art than science.”

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

The ongoing fiduciary requirement that plan sponsors benchmark their retirement plans to ensure they maintain competitive offerings can—and probably should—be more nuanced than merely looking at costs and investment performance. Attorneys and advisers see benefits in digging deeper to find better ways to analyze how each retirement plan is meeting its goals. At a time when automatic features abound, measuring a plan’s success in engaging plan participants must necessarily go beyond tracking plan participation rates.

Fiduciary judgment under the Employee Retirement Income Security Act plays a role in establishing the cadence of when and how to benchmark, says David Kaleda, a principal in the Groom Law Group, based in Washington, D.C. Kaleda sees most plans completing full requests for proposals to benchmark fees such as for recordkeeping and for advisory or management services every three to five years, with a planned follow-up on fees in the third year. If something significant has changed in the interim, such as if a plan merges into another plan and assets expand, he advises accelerating the timing. More broadly, Kaleda also sees plan sponsors comparing their plan design with that of their peers.

“Plan sponsors want to know what their peers are doing so they can be competitive in the employment marketplace,” Kaleda says.

Many Things to Monitor

Auto-enrollment features have also put additional emphasis on target-date fund selection, if such funds are designated as the qualified default investment alternative, Kaleda notes.

“The QDIA will hold a substantial portion of the assets of the plan, anywhere from 40% to 60%, so when an investment class holds that much of plan assets, it behooves plan sponsor fiduciaries to really look at those to make sure they’re quality investments and that the fees you’re paying are reasonable,” he says.

Kaleda also urges plan sponsors to keep informed about any conflicts of interest: “When you hire investment managers, that’s the time to find out if they have conflicts—particularly fee conflicts—and determine how they address them.”

Doug Stalter, a Cleveland-based vice president and retirement plan consultant with Oswald Financial Inc., emphasizes the importance of receiving independently sourced reports.

“Plan sponsors are more aware of some of their fiduciary responsibilities to make sure that they’re benchmarking their plan, so we are seeing that they’ve received reporting from their current adviser,” he says. “We think it’s especially important to make sure that they’re working with an independent provider to provide that.”

As part of an effort to monitor plans, Stalter benchmarks for his plan sponsor clients on an annual basis. 

“With the amount of movement and changes that we’re seeing in the retirement space right now, a lot of those conversations for us are not necessarily just benchmarking, but also helping set up the conversation of where we’re seeing movement and opportunity for growth and improvements and to support their employees,” he says. This could range from reviewing recordkeepers to improving investment options or finding new ways for advisers to engage with participants one on one.

Curcio too, sees the advantage in getting very precise in both evaluating the plan and considering the plan’s complexity. Among other things, she will consider: How many What kinds of populations does the 401(k) provider have to address? How many different cohorts and other factors such as communication and language needs are there? How many payroll systems are there?

“If we have a client and it’s very simple and they’re dealing with one benefits department and plan design is easy, that’s one end of the spectrum, and then we’ve worked with organizations that have a lot of unique requirements,” Curcio says.

Rather than merely looking at a fee range of $35 to $90 per plan participant, for example, she views a client with a very simple plan differently than a client with numerous plans, such as those with at least 10 to oversee. Curcio will also consider what the plan sponsor is aiming for, including whether might provide far better service and align with the overall goals.

“There’s a lot of variation among recordkeepers as to what’s included,” she says, pointing to two clients that have two people from their recordkeeper full-time on-site counseling employees and another client whose recordkeeper develops a custom wellness program every year. “You have to really look at the whole program.”

More Than Participation

She also advises plan sponsors to look beyond participation rates as a measure of plan success.

“One of the things that recordkeepers and plan sponsors should begin to do—for those that aren’t—is measure behavior,” she says. She recommends evaluating participant engagement with the plan and its information and education offerings.

John Lowell, a Woodstock, Georgia-based partner in October Three Consulting, also recommends plan sponsors take a step back and consider first principle questions of: What is their goal for benchmarking? What are they trying to do? How much does the plan design motivate people to save? How well do your communications influence people?

As much as possible, Lowell encourages plan sponsors who view retirement benefits as a core element of recruiting, retention and workforce management initiatives to gauge projected outcomes and be thoughtful about which of the available metrics measure that performance.

Ideally, Lowell would like benchmarking to include assessing the projected outcomes for plan participants if they continue at their current rate of savings and the plan remains the same. He then would compare that rate of success to other plans. He also would like the process to develop a broader sense of employees’ overall financial health: For instance, are they saving 10% of their pay while also running up consumer debt at the same time?

“Understanding why you have the plan and developing metrics around that reason or reasons is the right way to benchmark,” he says. “I would ask them to benchmark with purpose.”

More on this topic:

An Accurate Measurement of Retirement Readiness Means Looking Beyond Averages
The Why, What and How of Plan Benchmarking
2025 DC Survey: Plan Benchmarking
Benefits November 1, 2024

Personalization Push Persists

Increased data availability has led to many more ways to customize the management of retirement portfolios.
Reported by
Art by Klaus Kremmerz

This story has been updated for the magazine. That version can be found here: “The Move to Customization”

Almost two decades after the Pension Protection Act of 2006 paved the way for target-date funds to become near-ubiquitous in today’s 401(k) plans, a growing number of plan sponsors are now thinking about how plans can evolve further to improve participants’ financial well-being both up to and through retirement.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Many plan sponsors believe the answer lies in more personalized offerings, including options on where and how to direct participant and plan sponsor contributions. The paths plan sponsors are taking toward personalization vary, with employers looking to an expansion of managed accounts and lifetime income offerings, including hybrid qualified default investment alternatives; targeted communications and nudges; and new in-plan (thanks to the SECURE 2.0 Act of 2022) and out-of-plan features.

“There’s a consensus in the industry that the more we know about an individual, the more effective we can be in building an asset allocation that reflects their objectives and meets their needs,” says Jessica Sclafani, a senior defined contribution strategist at T. Rowe Price.

The push toward personalization reflects two key shifts: First, a widespread recognition that improved retirement outcomes require more information than the single data point (projected retirement date) used to inform target-date funds. Second, advancements in technology make it easier to collect and use data about individual participants to produce a more customized retirement road map.

But while recordkeepers and employers may be able to share some data—such as an employee’s salary, age and account balance—they still need employees to share additional information—including outside assets, financial goals and risk tolerance—to fully tailor a retirement offering.

“One of the challenges with personalization has been that if you’re going to use personalization as a default, either you need to get information directly from an employer or recordkeeper, or you need an engaged participant,” says Kevin Walsh, an attorney at Groom Law Group. “One of the things the defaults are trying to solve for is a lack of participant engagement.”

Better Outcomes

A recent study by Prudential made the case for both personalized investments and a managed withdrawal strategy, arguing that even a well-invested portfolio cannot overcome a suboptimal withdrawal strategy. A separate study, published in March in The Journal of Portfolio Management, pegged the average benefit of personalization across assumed balances and salaries at 5% to 6%.

Such research is increasing plan sponsor and consultant interest in both managed accounts and hybrid QDIAs, which incorporate personalization and target-date funds or automatically move participants into managed accounts when they reach a certain trigger point, often based on their age or account balance.

In addition to cost, a deciding factor for many plan sponsors as to whether to introduce managed accounts—on their own or as a QDIA—is the relative heterogeneity of their employment population.

“If your participants are all similar and bunched together closely in terms of their compensation or career trajectory, you might conclude that a target-date fund is more suitable,” Walsh says. “But if your participants are very different than one another in terms of whether they’re highly compensated or the length of their career, you might think a managed account is a better solution.”

Older workers tend to have more assets and more complicated financial situations that may require personal guidance, but younger workers also have important financial goals, including paying down debt, building an emergency fund or saving for a down payment on a home. For now, most managed accounts are offered as an opt-in on the investment menu, according to T. Rowe Price research.

Personalized Communication

Regardless of whether their plan includes a managed account or a hybrid QDIA option, many plan sponsors are finding additional methods of personalizing their offerings and the ways they interact with participants. Often that starts with a targeted communications strategy that corresponds with the specific needs or life stage of an employee, via that participant’s preferred media.

“We’re reaching out to employees to give them education and meet them wherever they are in their retirement journey, to really lay out the benefits of the retirement plan and encourage them to take the next best action,” says Hutch Schafer, vice president of product development for Nationwide Financial.

That best action might simply be enrollment for some eligible employees. It could also be, for those already enrolled, putting a plan in place to boost contributions, or encouraging them to enter additional information about their financial situation so that the next action is more accurate for their specific situation.

“If you’re not hitting on their hot button issues about what’s really important to them, the chances of them fully engaging isn’t as great,” Schafer says. “So providing personalized messaging along the way can get them more engaged and help them make better decisions about their retirement.”

Help From Technology

Recordkeepers are increasingly turning to technology, often with the help of their fintech partners, to make those messages even more relevant to their intended audiences, says Deb Boyden, head of U.S. defined contribution at Schroders.

“They’re providing technology that really speaks in different ways to different populations,” Boyden says. “There’s so much that can be done with [artificial intelligence] now, and many of these firms are really taking advantage of AI to customize the messaging even more so.”

For participants who remain in a plan after they have retired, personalization should focus on turning their accumulated assets into income, Boyden says.

“The industry has put a great emphasis on asset accumulation, but decumulation strategies are equally important and arguably more complex,” Boyden says. “All kinds of new variables come into play at retirement: taxes, health care needs when to take Social Security.”

Looking ahead, industry experts say it is clear the trend toward personalization will continue.

“Millions of American workers now have this pot of money [in their 401(k) plan], but everyone has different needs and financial hurdles to overcome,” says Tim Rouse, the executive director of the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute. “But everyone has different needs and different financial hurdles to overcome, so that’s only going to drive personalization.” 

«