How Can Benchmarking Determine Plan Competitiveness?

Created by Kelly Knudsen, Modified on Thu, 29 Aug at 11:18 AM by Kelly Knudsen

Benchmarking is a powerful tool for assessing the competitiveness of your retirement plan by providing a clear comparison of your plan’s features against those offered by peers in your industry. This process involves gathering data on key elements of your plan, such as employer contributions, fees, investment options, and participant outcomes, and then measuring these aspects against industry standards or specific competitor offerings. The goal is to understand how your plan stacks up in terms of both value to employees and cost-effectiveness.

One of the primary ways benchmarking determines competitiveness is by evaluating the financial benefits offered by your plan, particularly employer matching contributions. For instance, if the industry average for employer match is 5%, but your plan only offers 3%, this could be a significant factor in why top talent might choose a competitor over your company. By identifying such discrepancies, you can adjust your plan to meet or exceed industry norms, making it more attractive to current and potential employees.

Benchmarking also scrutinizes the investment options available within your plan. In a competitive job market, employees are not just looking for a basic retirement plan; they want access to a diverse range of investment opportunities that align with their financial goals and risk tolerance. By comparing the diversity and performance of your plan’s investment options against others, you can ensure that your plan is meeting the needs of a broad range of participants, from conservative investors to those looking for higher-risk, higher-reward opportunities.

Another critical aspect of benchmarking is the analysis of plan fees. High fees can erode the value of retirement savings over time, which can be a major concern for employees. By benchmarking the fees associated with your plan against industry averages, you can determine whether your plan offers competitive value or if cost reductions are necessary. This could involve renegotiating with service providers or exploring different investment options that offer similar returns at lower costs.

In addition to these financial components, benchmarking can reveal how well your plan supports employee engagement and retirement readiness. This might include evaluating the effectiveness of your plan’s communication and education efforts, the utilization of digital tools, or the availability of personalized financial advice. High participation rates and positive feedback from employees could indicate a competitive plan, while low engagement might signal the need for improvements.

Ultimately, benchmarking provides actionable insights by highlighting strengths and weaknesses in your retirement plan. This not only helps you align your offerings with employee expectations and industry standards but also ensures that your plan remains a valuable tool in attracting and retaining talent. In the context of fiduciary responsibility, regular benchmarking demonstrates that you are actively managing the plan in the best interests of your participants, which is essential for both legal compliance and organizational success.

References:

[1] U.S. Department of Labor. (n.d.). Selecting and monitoring service providers. Retrieved from https://www.dol.gov/agencies/ebsa/key-topics/retirement/selecting-and-monitoring-service-providers

[2] Society for Human Resource Management. (2022). The importance of retirement plan benchmarking. Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/retirement-plan-benchmarking.aspx

[3] National Association of Plan Advisors. (2023). How to benchmark your 401(k) plan. Retrieved from https://www.napa-net.org/news-info/daily-news/how-benchmark-your-401k-plan

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