By Mark Olsen, Managing Director at PlanPILOT
Every retirement plan committee eventually asks some version of the same question:
How does our plan compare?
The usual response is to pull a benchmarking report, scan a page of averages, and file it away until next year. But a report full of averages only tells you something useful if those averages reflect plans that resemble yours.
A plan can look perfectly healthy next to a broad industry average and still be behind the institutions it should really be measured against. Before a committee can trust its own benchmarking results, it needs to ask a question other than “Are we average?”
It needs to ask: Average compared with what?
This type of insightful question is typical of what PlanPILOT asks our plan sponsor clients. Our consultants go “beyond average” to elevate employee benefit programs to higher standards of excellence. Let’s look at the prudent method of using benchmarks to evaluate your plan.
Require a Relevant Peer Group, Not Blended Averages
Benchmarking only produces useful insight when the comparison is relevant. A plan sponsor needs to know the type of plan, the peer group, the asset size, the participant base, the industry, and the service model behind the numbers they’re reviewing.
A higher-education 403(b) plan with a multi-vendor history or unique participant demographics doesn’t behave like a corporate manufacturing 401(k), and a $50 million plan doesn’t carry the same fee structure or service needs as a $500 million plan.
When a benchmarking report lumps all of these together into one blended average, the results can be misleading in either direction: a plan may appear to be doing better than it is, or it may look like an outlier when it’s actually performing well for its size and structure.
Committees should ask their consultant or recordkeeper how the peer group was built before drawing conclusions from a report. If a plan can’t be tied to institutions of similar size, structure, and participant demographics, the comparison isn’t telling the committee much.
Evaluate Total Value, Not Just Bottom-Line Cost
Cost is an easy number to point to, and it’s tempting to make an entire benchmarking exercise about who charges less. That’s a mistake. Fees should be evaluated in relation to what they’re paying for: recordkeeping support, investment options, participant education, technology, and fiduciary assistance.
Low fees alone don’t tell a committee very much. The better question is whether participants and the plan are receiving fair value for what they pay.
A plan that pays slightly more for a recordkeeper with stronger service and better technology may be in a stronger position than one chasing the lowest number on a fee schedule. Committees that focus only on cost risk trading away real value for a number that looks good on paper but doesn’t hold up once you look at what’s being delivered.
Connect Benchmarking to Your Fiduciary Process
Benchmarking works best when it’s treated as part of an ongoing, prudent process for managing the plan, not a report that gets reviewed once a year and set aside. Committees should document what they reviewed, which comparisons were used, why those comparisons were appropriate for their plan, and what actions were considered as a result.
This kind of documentation matters beyond the meeting where it happens. A consistent, well-documented review process gives a committee something to point to if its decisions are ever questioned, and it gives new committee members a clear record of how and why past decisions were made. Good benchmarking helps demonstrate that a committee maintains a prudent, repeatable process for evaluating the plan, helping fulfill and document its fiduciary obligations under ERISA.
Turn Data Points Into Actionable Committee Decisions
A benchmarking report that sits in a file folder hasn’t done its job. The real value of benchmarking is the clarity it gives a committee about where the plan stands and what should happen next.
Depending on what the comparison shows, that might mean renegotiating fees with a recordkeeper, reviewing the investment lineup, conducting a vendor search, updating plan design features, improving participant communication, or revisiting governance practices. Not every benchmarking cycle will call for a major change. Some years, the right decision is simply to confirm that the plan remains well-positioned and to document why.
Either way, the process should end with a decision, not just a data point. We recommend implementing a Committee Action Checklist as follows:
Questions Your Committee Should Ask Before Reviewing a Benchmarking Report
- What specific demographics, asset sizes, and industry types comprise this peer group?
- Are recordkeeping fees being evaluated in light of bundled services, technology quality, and participant support?
- Does this report include actionable recommendations that can be formally documented in our meeting minutes?
Benchmarking Is a Process, Not a Snapshot
Retirement plan committees carry a lot of responsibility, and benchmarking is one of the clearest tools available for demonstrating that a plan is being managed with care. But the value of that tool depends entirely on what it’s measured against. A plan compared to the wrong peer group, or judged only on cost, can leave a committee with a false sense of confidence, or an unnecessary sense of alarm.
Getting the comparison right takes some work up front: identifying the right peer group, evaluating fees alongside services, documenting the process, and following through on what the results actually recommend. That work is what turns benchmarking from a compliance exercise into a genuine part of managing a retirement plan well.
Ready to Benchmark Your Plan the Right Way? Talk With Us.
At PlanPILOT, we help retirement plan committees build a benchmarking process that reflects their plan, not a generic average. As an independent consulting firm, we’re not affiliated with any investment funds, recordkeepers, or other service providers, so the comparisons we help build are based on what’s right for your plan and your participants, not what benefits a provider may offer.
Our team works with committees to identify a genuinely comparable peer group, evaluate fees against the services being delivered, and document a process that holds up to fiduciary scrutiny.
To learn more about how we can help you build a benchmarking process built around your plan, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com.
Frequently Asked Questions
How often should a retirement plan be benchmarked?
Most plans benefit from a formal benchmarking review at least every one to three years, though larger or more complex plans may review certain elements, such as recordkeeping fees, on an annual basis. The right frequency depends on plan size, how recently vendors or investments were reviewed, and whether any major changes have occurred within the plan or its participant base.
What’s the difference between benchmarking fees and benchmarking the plan as a whole?
Fee benchmarking looks specifically at the cost of recordkeeping, investment management, and advisory services compared with similar plans. Benchmarking the plan as a whole takes a wider view, comparing plan design features, participant outcomes, service levels, and governance practices against relevant peers, not just the numbers on an invoice.
Does a lower-cost plan automatically mean a better plan?
Not necessarily. A lower-cost plan can be a good outcome, but cost is only one part of the equation. A plan that pays somewhat more for stronger recordkeeping support, better technology, or more effective participant education may deliver better outcomes than a plan that simply has the lowest fees on paper.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.