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Benchmarking: It Isn’t Just for Fees Anymore

When I first started at Cammack Retirement more than 25 years ago, benchmarking in retirement plans primarily consisted of little more than measuring the performance of plan investments against indexes and peers.  More recently, and as a result of the DOL’s emphasis, benchmarking of fees versus plans of similar size and type has become the primary focus.

However, in the focus on fee benchmarking, some plan sponsors have concentrated solely on fees, to the exclusion of other important measures of the retirement plan’s success.  Plan sponsors who are not currently benchmarking the following plan metrics may wish to consider them:

  • Overall plan asset growth — Arguably, this is the most important measure of a plan’s success. A plan could have the lowest -cost fee structure on the planet, but if it is not growing sufficiently, then the primary purpose of the plan—to provide sufficient retirement income—may not be fulfilled.
  • Average account balance — This is an important measure for two reasons:  1) It can have a significant impact on fees, as recordkeepers generally price plans with higher average account balances far more favorably.  2) The average account balance can serve as an overall measure of the degree to which plan participants are accumulating sufficient assets for retirement.
  • Projected income replacement ratios at retirement — Generally expressed as a percentage of salary for each participant in the plan, this illustrates the extent to which individual participants are (or are not) on track to retire with sufficient income.  By breaking down these figures by age/service, salary level, and other parameters, plan sponsors can target those employees who may not be accumulating sufficient assets with customized engagement campaigns.

This is not to say that benchmarking of fees is not extremely important.  It is, and plan sponsors should absolutely be comprehensively benchmarking fees.  However, prudent plan sponsors will cover all of their bases by benchmarking other measures of a plan’s success as well. 

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Investment products available through Cammack LaRhette Brokerage, Inc.
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Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291