Company Plan Comparisons - Not a Service to Participants, or Anyone Else For That Matter

Ever since 401(k) came onto the scene, attempts have been made to set templates by which to judge which company plans were better than others. While benchmarking plan practices is helpful for plan decisions makers, it is generally not useful when third parties make judgments about which companies have the better plans. In fact, such judgments, publicly made, can be harmful if they impact negatively the workplace dynamics of a sponsoring company.

A primary benefit of the employer sponsored defined contribution system is the employer’s ability to structure its plan in such a way that it will maximize the benefit to both participant and employer. This flexibility is important because the American workplace is so diverse, and we want as many employers as possible to sponsor plans. Such flexibility also makes it difficult to do plan to plan comparisons. For example, the plans of professional firms will almost always be more generous than plans of other organizations. To suggest that the plan of an organization with a high percentage of professionals, like a law firm, should be favorably compared with one where even the manager earns less than $100,000, like a restaurant, is ludicrous. The same principle holds true for larger companies as well.

Such attempts also can negatively impact best practices plan design by suggesting a particular plan design is a best practice when it is not. During the 90s, and even more recently, those attempting to make company to company comparisons favored plans with the most investment options. I actively opposed such comparisons but was often over ruled, and for a while it was agreed by many that the best plans had the most investment options. There were even published grids comparing companies on the number of options in their plans. What we know today is that too many funds can negatively impact plan participation and participant investment allocation. Today companies that had scores of choices are in the process of reducing their menus.

Those who would judge a particular company’s plan design need to understand that the choice to sponsor a plan is voluntary, and plan design is based on a collection of factors, not the least of which is to keep the organization financially viable. It's great to collect and share information. It's wrong to make judgments.