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Guest Article Does Your Organization's Retirement Plan Measure Up?By Jeb Graham CEBS, CIMA® of CapTrust Financial Advisors, an independent consulting/advisory practice focused on the institutional retirement plan market, serving corporate, closely held, non-profit and governmental organizations. You may contact Jeb at 813.218.5008 or jeb.graham@captrustadv.com. Some mid and large market organizations make an attempt to evaluate and measure their plan…but most benchmarking is related to relative comparison of investment performance or cost analysis. Very few organizations - even the large ones - apply any consistent, logical standard of overall measurement to their pension or 401k plans. Is it just not important? Given that companies spend millions of dollars and countless hours of their own payroll time related to their retirement plans, it certainly can't be "not important." Could it be that employee benefits have become commoditized to the extent of indifference? Maybe the lack of an overall measurement can be linked to plan sponsors not having determined the cost or negative impact to the firm of their plan being mediocre…or perhaps they haven't given much thought as to what the standards of measurement might be. What are you measuring? So how can an employer tangibly measure whether a retirement plan is great, mediocre or below standard? What are some benchmarks by which the relative success of a plan might be assessed? It would be extremely difficult to gauge results from the standpoint of retirement income produced or standard of living maintained in retirement. Even if such results could be quantified, they could not be translated into impact on the firm today. With respect to the effect on a firm's bottom line, the only real yardsticks are collective employee perceptions weighed against all related costs. The employee perceptions can be divided into two categories: The relative positive or negative perception of the plan as a benefit; and, the perception, by those internally involved, of the quality of services being received from providers as a whole. If employees perceive the 401k plan as weak, or the pension plan as a non-event, it does not matter how many dollars or what percentage of pay the firm contributes, nor does it matter how much the firm is spending to communicate or administer the plan. This is a blinding flash of the obvious…the resources being spent are not translating into a positive bottom line impact. If the individuals responsible for daily operational functions are frustrated with service providers being user-unfriendly or not responsive to their needs, it doesn't matter how many awards that provider has won for good service, or how competitively the services are priced. If service expectations are not delivered upon, these individuals with operational responsibility lose incentive to make the arrangement work…the result is often a change in providers. And since those fiduciary decision makers and internal operational staff often lack retirement plan expertise, their roles can be doubly challenging. That is why changing providers is frequently not the solution. Measurement process How then, does the employer know if their plan is up to snuff? An annual survey in which participants are asked to rate, on a scale of 1-10, various aspects of the plan is a good place to start. Using a rating scale is absolutely critical. (Yes/No questions often don't provoke enough thought or depth of results, requesting short answers may be intimidating or require too much time to both take and administer, and an effective multiple choice survey is hard to design.) Although very simple, the following survey questions will likely provide plan sponsors with a sense of how the plan is perceived by participants. On a scale of 1-10, with 10 being highest, how would you rate:
Using the 1-10 scale may not be exact, but it is close enough to ascertain good vs. mediocre. If more than five questions are asked, some participants may be scared off. It is also a good idea to make anonymity an option. It is also suggested that feedback be gathered from all employees with functional involvement in the plan operation. The goal here is to learn how well the plan is running and if there are sources of frustration or discontent that might spill over to other participants. It is surprising how much damage one or two individuals can do to the overall perception of hundreds of employees. Using a similar 1-10 rating scale, a couple of good questions might be:
Frequently, the senior management perceptions are not in line with those with day-to-day responsibility for the plan. Responses to these questions should help get everyone on the same page. In summary, the most obvious strategies are often overlooked. Take this opportunity to look at your plan, or those of your clients, from the standpoint of how well it is performing…in the eyes of those it impacts. Make an effort to determine if the organization is really getting the maximum result from the resources being allocated. This material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. The views contained herein are the opinions of the author. It is not intended as legal or tax advice. CapTrust Advisors, LLC is a Registered Investment Advisor with the SEC. CapTrust is not a legal or tax advisor. Other articles by Jeb Graham: Looking Under the Hood of Your 401k to Understand the Real Costs and The Importance of Legal Counsel Review. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
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