Important considerations for benchmarking a retirement plan (and when you know it’s time to start shopping)

Why benchmark a retirement plan?

Department of Labor regulations, ERISA, and specifically section 408(b)(2), require that plan sponsors obtain fee disclosures for their plan and that all such fees be “reasonable” for the services provided. Unfortunately, retirement plan fees have become increasingly complex in how they are collected and the marketplace is ever changing! Understanding value is tough.

Benchmarking is an art, not a science

Benchmarking is comparing services received for fees rendered, including quantitative AND qualitative aspects. This can be accomplished several ways, all of which are messy and require a translator to put them in perspective for you:

1) Available information from publications (i.e. the 401(k) Averages book)

  • Advantage: Easy and cost-effective way to get information
  • Disadvantage: It does not take into account statistics related to your industry or services your particular plan needs. The information is likely not updated regularly, may not be detailed enough, and may not be wholly accurate.

2) RFI Process

  • Advantage: Receive a survey across the marketplace of what services are available and at what cost. This may result in gaining leverage in negotiating pricing at the current vendor or provide the ability to pursue an RFP to change to a different provider.
  • Disadvantage: Some retirement plan platforms amortize their pricing over a certain period of years, making newer plans cheaper than current plans in force. Some services may appear disproportionately cheaper.

3) Third-Party Benchmarking

  • Advantage: this information should be from a reliable, impartial source. This option compares plans to similar plans based on active plans with fresh data.
  • Disadvantage: Not all services are created equal. The data must not be stale, the plans should be of similar size and industry, and the comparison group large enough to provide meaningful results.

When is it time to go shopping for a new vendor?

Well, in short, it’s when you can’t justify the services you’re getting for the fees you’re paying, you just aren’t sure if what you have is competitive, or you know for a fact you’ve outgrown your current plan. As fast as the marketplace moves in launching new products and services, it’s not unreasonable to think you should be looking every 3-5 years.

Need a quick benchmarking study or an in-depth one? Contact us today or click here to download our white paper on the subject.