Key takeaways:
- Retirement plan benchmarking goes beyond investment performance and fees.
- Participation, deferral rates, plan design features, and retirement readiness matter just as much.
- Regular benchmarking helps plan sponsors fulfill fiduciary duties and improve participant outcomes.
Imagine giving your company’s retirement plan a report card. Would it earn top marks for helping employees retire on time, or would it reveal gaps that need attention?
That’s exactly what retirement plan benchmarking is designed to do. Benchmarking compares your plan’s performance and design to similar plans, providing insight into whether your plan is competitive, compliant, and truly supporting participants’ long-term retirement readiness.
For plan sponsors, benchmarking isn’t just a best practice. It’s a key part of fiduciary oversight.
Start with the Fundamentals of Retirement Plan Benchmarking
Most plan sponsors already monitor several core metrics when reviewing plan performance, including:
- Investment performance compared to appropriate peer groups
- Plan fees, including investment and recordkeeping costs
- Participation rates among eligible employees
- Average deferral rates, including employer matching contributions
- Breadth and structure of the investment lineup
These benchmarks remain essential. Regulators and courts continue to expect plan fiduciaries to understand and monitor fees and investments on an ongoing basis.
But today, benchmarking should go further.
Evaluate Plan Design Features That Drive Better Outcomes
Plan design plays a growing role in participant success and increasingly factors into benchmarking reviews and audits.
Key features to evaluate include:
- Automatic enrollment and automatic escalation (Now mandatory for many new plans under SECURE 2.0)
- Default investment options, such as target-date funds
- Retirement education and financial wellness tools
- Online planning and income projection tools
- Access to personalized investment advice or managed accounts
Industry data consistently shows that plans with automatic features and strong participant tools achieve higher participation and contribution rates. From a benchmarking standpoint, sponsors should understand how their plan’s features compare to similar-sized plans within their industry.
Use Participant Data to Spot Strengths and Red Flags
Some of the most useful benchmarking insights come from data that’s often overlooked.
Average Account Balances
Average participant account balances provide insight into whether employees are accumulating meaningful retirement savings. This metric should be analyzed in context, considering:
- Workforce age and tenure
- How long the plan has been in place
- Contribution and escalation settings
Account balances also impact recordkeeping fees, as higher balances often result in lower per-participant costs.
Asset Growth Trends
Plan asset growth reflects both contribution behavior and investment performance. While market volatility can cause short-term fluctuations, long-term stagnation may indicate low participation, inadequate deferral rates, or ineffective plan design.
Measure What Matters Most: Are Participants on Track to Retire?
Ultimately, a retirement plan’s success isn’t defined by one metric. It’s measured by outcomes.
An increasingly important benchmarking question is:
How many participants are actually on track for retirement?
This often involves estimating whether participants are likely to replace a meaningful portion of their pre-retirement income, commonly 70% to 85% or more, based on current savings rates and projected growth.
While these projections involve assumptions about retirement age, market returns, and outside savings, they provide valuable insight into whether the plan is delivering real value to employees.
Why Regular Benchmarking Matters for Plan Sponsors
Strong retirement benefits are critical for attracting and retaining talent. Regular benchmarking helps plan fiduciaries:
- Demonstrate prudent oversight
- Identify improvement opportunities before problems arise
- Support decisions around plan design, providers, and fees
- Strengthen employee financial security
From an audit perspective, benchmarking documentation also supports compliance and fiduciary governance.
How an Employee Benefit Plan Audit Team Can Help
Benchmarking a retirement plan is not a simple math exercise. It requires selecting appropriate peer data, interpreting results accurately, and understanding how plan design, demographics, and market conditions interact.
Our Employee Benefit Plan team helps plan sponsors:
- Identify relevant benchmarking metrics
- Evaluate plan fees, investments, and administration
- Understand participant saving and retirement readiness trends
- Document fiduciary oversight and decision-making
If you’d like help evaluating whether your retirement plan is truly making the grade, we’re here to help.
Contact Jake Kriegler, CPA at jkriegler@myboyum.com to discuss your plan and next steps.