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NAGDCA Note: An Overview of Plan Benchmarking

Benchmarking involves comparing and evaluating performance levels and processes of organizations within their own sector.  The information collected is used for identifying opportunities for improvement and/or setting performance targets.  Benchmarking a retirement plan involves looking at the inner workings of the plan to monitor how well it is serving its participants. And it can provide information needed to improve the plan and identify areas that may need attention, such as investment options that need to be reviewed or replaced, fees that need to be renegotiated, plan features that need to be enhanced or modified, and education and communication efforts that need to be updated.

When determining which areas to benchmark, consider looking to the goals of the plan. There are different metrics used during benchmarking such as recordkeeping fees, plan design, administration of the plan, investments, and communication. After selecting a benchmarking company and determining what the objectives are, the largest part of the plan sponsor's role comes to play in analyzing the results once the study is complete. 

The first step the benchmarking company will take is to create a benchmarking group made up of comparable plans so there's an “apples-to-apples” comparison. When determining if a plan is comparable, the following should be considered; plan assets, number of participants, last plan review, and plan type.

Although public plans are not subject to ERISA, many times the guidelines are used as a best practice.  ERISA section 404(a) requires that fiduciaries elicit information necessary to assess not only the reasonableness of the fees to be paid for services, but also the qualifications of the service provider and the quality of the services that will be provided.  Benchmarking allows plan sponsors to do a fee to services comparison of other plans in their benchmarking group. Among other things, this will help determine if the plan is receiving the right amount of fiduciary support from the current service providers. It's about understanding what the plan and participants are getting for what they're paying.    

Benchmarking allows plan sponsors to provide better outcomes for plan participants, by making changes to the plan design, improving communications, lowering fees, and offering better investment choices. It provides a baseline for measuring investment performance, risk and costs. 

Benchmarking is also about participant success measures. Participation rates, and the percentage of participants taking loans or distributions are all measures of how well the plan is actually helping people save for retirement.  Plan sponsors receive information necessary to determine if other communication plans would increase plan participation.  Benchmarking gives the opportunity to look at the whole plan design and success of the plan.

Benchmarking is a broad topic and there isn't necessarily a right or wrong way of going about it. It's an ongoing process that allows organizations the information needed to develop plans and best practices to further enhance retirement savings plans.

Neither NAGDCA, nor its employees or agents, nor members of its Executive Board, provide tax, financial, accounting or legal advice. This memorandum should not be construed as tax, financial, accounting or legal advice; it is provided solely for informational purposes. NAGDCA members, both government and industry, are urged to consult with their own attorneys and/or tax advisors about the issues addressed herein.


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