Evaluating Retirement Plan Success

Plan sponsors want to know if their retirement plan is delivering a successful outcome for their employees. Some collectively coordinate information about each individual employee and the prospective level of their federal benefits to project how a plan is doing. Each employee’s date of birth, plan balance (and how it’s invested) and savings rate (and how it’s allocated) are part of this process.

However, without a full understanding of someone’s household finances it is not possible to determine if a participant is on track or not. Unfortunately, plan sponsors do not want, nor can they request, such a financial accounting. Further, the typical person works 16-17 years at the organization from which they retire. Does any sponsor have what can be accumulated over a 17 year period as the target for their DC plan? To people who suggest that participants might sue their employer when they retire because they do not have enough, I reply "which employer?" since a typical worker will have had many employers over a 40 year career.

It is useful to present participants with their current accumulations in a way that puts those accumulations in perspective but those balances or potential outcomes have little relevance in determining how a plan is doing (or the 401(k) system either). What can be measured and is relevant are participation and savings rates. It is interesting that according to PSCA’s 54th Annual Survey increasing participation and increasing deferrals rank as one and two on the list or primary purposes for participant education.