As plan sponsors look to 2013, they might consider setting aside some of their retirement plan budgets to benchmark various aspects of their plan designs, vendors, and processes in order to ensure that their plans are competitive, compliant, and providing value to each company and its employees.Many industry experts recommend benchmarking defined contribution (DC) plans every three years to ensure they are receiving the same pricing and product offerings that any new client would receive. Do you have a dated legacy product? If so, this could be a good time to benchmark your plan.
Remember, ERISA imposes high standards the highest known to law upon fiduciaries. Section 404(a) of ERISA provides that fiduciaries must elicit information necessary to assess not only the reasonableness of the fees to be paid for services, but also the qualifications of the service providers and the quality of the services that will be provided. Benchmarking your plan can help ensure that the fees you and your participants are paying are reasonable and commensurate with the services received, and will help to protect against public embarrassment and legal hassles.
But benchmarking is not just about fiduciary protection. Fees and plan design features have a huge impact on retirement savings for participants, contributing not only to the success or failure of their retirement readiness, but also to the value of a company's retirement plan as an employee recruitment and retention tool.
Benchmarking a plan can be performed in many different ways, including issuing a request for proposal (RFP). Conducting an RFP can result in a thorough review of plan(s) and service providers, with the search consultant providing added value by educating plan sponsors on how to be smart consumers in the retirement plan marketplace. However, this can be an expensive and time-consuming process requiring internal resources, typically senior staff.
As a first step, you might consider having a recordkeeper or investment advisor run a benchmarking report from an independent benchmarking company such as Fiduciary Benchmarks, Inc., BrightScope, Plan Tools, or Advisor Labs Retirement Plan Diagnostic. Each of these companies can produce a nice executive summary diagnostic report, which can be very useful in evaluating plans and negotiating with vendors.
Whichever tactic you choose, it's important to consider the following in order to maximize the benefits of benchmarking your plan:
Use up-to-date, accurate, and consistent plan data. Apply this rule to collect and examine the plan fees in the benchmark group as well.
Compare the plan in a relevant context: Plans of similar size, type, design, location, and industry.
Don t forget to consider the value provided! It can be reasonable to pay higher fees if a plan is receiving more or higher-quality services or is attaining higher participant success measures than similar plans.
Regular benchmarking of retirement plan costs and performance can go a long way to protect a plan's fiduciaries and participants.