PSNC 2022: Defining and Measuring Retirement Program Success

Plan sponsors examine retirement program success in different ways, but their primary goal remains maximizing employees’ retirement preparedness.  

According to industry experts at the 2022 PLANSPONSOR National Conference, plan sponsors define and measure success with quantitative metrics—including plan participation, deferral rates and account balances—and qualitative analysis.

David Harris, director of retirement and risk management services at Gwinnett County Public Schools, explained that the school system is now focused on employee education, which is needed to improve workers’ retirement readiness.

GCPS provides two defined contribution options, 403(b) and 457 plans, which supplement two defined benefit plans. The pensions replace around 80% of employees’ income. “These [DB plans] are the primary drivers of retirement,” he said.

He explained that the defined contribution participation rates improved significantly with the addition of automatic enrollment: The plans have achieved a participation rate of above 70%, compared with 30% prior to auto-enrollment, with 92% of employees remaining in the plan at retirement. But, he said, complementing the plan designs with education is crucial. 

For example, plan participants remained contributing 2.5% without escalating to higher rates, which meant they likely weren’t saving enough, he said.   

“When you put a plan in place oftentimes, people think the plan was put in place for reasons other than what was actually put in place,” Harris explained. “We’ve had several conversations with people on automatic enrollment, and we talk to people when they’re getting close to retirement, who have stayed at that [2.5%] contribution rate their entire career. When we asked them why, their response was, you all set it at [2.5%] because you know what you are doing.”

Employees must be informed that sticking to such a level throughout their career will yield insufficient savings at retirement, Harris said.

Participants thought “that’s the right number,” he said. But, he noted, “that’s not how that number came to be. That number came to be at a level that was good enough for them not to drop out of the plan.”

Harris said the plan sponsor reaffirms to participants that they should save between 10% and 15% of annual income throughout their careers to be prepared for retirement. “That’s where our education is now focusing on: getting people to look at how much they’re contributing and try to move that up the ranks. We want to get it to [11%], but actually my goal is just to get it up to a 5% level, because we’re already contributing 6% to our state retirement program,” he added.

Joseph Fifer, president and CEO at the Healthcare Financial Management Association, taps metrics—including by measuring participation rate, savings rate and participant balances against national averages. “But honestly, that’s not how I measure success,” he said.   

“Our goal in our plan—and how we try to measure success—is evaluating the engagement with our employees,” he said. “Do they see themselves as either adequately prepared or adequately preparing for their own retirement? Do they own their retirement future?”

Fifer said there are metrics that can be associated with these questions and that while the plan sponsor does use data and analytics, the qualitative measures are just as important.

“I’m looking for the subtleties,” Fifer said. “Are you thinking about retirement? Do you have a game plan? Are you actively working toward it? You can’t necessarily put one number on that, but we know that we are in pretty good shape with our employees [and] that they are actually saving and planning for their retirement.”

For Nick Madl, financial consultant at intellicents, “the definition of success in retirement planning is evolving because we continue to raise the bar,” he said. “We have made a lot of progress in terms of automatic features, financial wellness programs, and then COVID-19 happened. I think that it’s exposed a lot of our industry weaknesses.”

Many workers are unable to save sufficiently for retirement because they are dealing with day-to-day financial challenges. Workers are struggling with student loans, emergency funds or debt management resources, which prevent saving for retirement, he said. 

“If we’re asking people to save for tomorrow’s money, we believe we need to help advise them on today’s money,” Madl said.

“We think that if we can bring that advice above and beyond the 401(k) to help improve the health of today’s money, that will in turn allow for that individual employee to increase long-term savings rates,” Madl added. “We’re really focused on not necessarily financial wellness but we believe financial planning is the next employee benefit.”