Plan Objectives

A retirement plan or a supplemental retirement plan: A retirement plan is considered to be the primary source of retirement income for an employee. Typical features found with these types of plans include high matching employer contributions, auto-enrollment and escalation plan design features (employees should be in the plan with a plan design set up for them to retire on). A supplemental plan, accordingly, does not share these similarities, and tends to be optional for the employee as another (but not primary) source of retirement income. Supplemental plans typically accompany defined benefit plans.

Above or below average (DB) benefits: This is specific to the defined benefit plan and the level of benefits (income) it pays in retirement. In general, benefits replacing half or more of income can be considered “above average.”

Post-retirement utilization of plan by participants: Determined if over half of employees stay in the plan beyond age 65. The recordkeeper can supply data that indicates how many participants stay in the plan after retirement.

Plan Demographics
Degree of investment knowledge: The average investor would be better suited in a professionally managed asset allocation solution versus doing it alone. Above average knowledge would include employees in certain industries where there is presumably more knowledge in this subject (financial services companies, banks, investment managers). Some companies may also have a highly educated workforce, which potentially increases the likelihood of having a financial advisor (or access to one) to help them make these decisions. In certain instances, the recordkeeper can provide information regarding participant asset allocation that can aide in measuring the degree of investment knowledge. Some items to consider would be, but are not limited to - young participants invested in the cash account, significant allocations to specialty (non-core) asset classes, or participants invested in more than one target date fund.

Contribution rates: The recordkeeper can supply data that indicates the contribution rates (employer and employee). High contribution rates are considered to be in double digits.

Account balances near retirement: This is specific to the plan and the salary levels at the company (higher account balances are needed to replace high salary levels). National averages are not applicable. If account balances are not six digits, they are not considered high.

Participant Behavior
Level of participant involvement: The recordkeeper can supply data that indicates the level of involvement (web usage, phone calls, rebalancing, etc.). High participant involvement means the majority of participants are actively engaged in the plan.

Expected participant utilization of retirement plan: Plan design is an influential determinant of participant behavior. Presentation of the plan is another measure. For example, if plan design or investment options/advice encourages participants to remain in the plan post-retirement, then more participants can be expected to stay in the plan. Most participants leave the plan shortly after retirement due to the plan (historically) being positioned as an accumulation vehicle.

Participant risk levels: There are different types of participants, some willing, and some not willing to accept risk. Risk neutral means the participant is comfortable accepting risk for the opportunity of a certain range of return. Risk averse means the participant is not comfortable accepting risk if there is a chance for a similar degree of loss (there is more “pain” when experiencing a loss). If it is perceived that the majority of participants are comfortable with a wide range of returns (or short term volatility), that would indicate risk neutral behavior. The balance of plan assets in money market, stable value, or other conservative investments is another indication of risk tolerance.