Editorial Team

By Mark Olsen, Managing Director at PlanPILOT

For many years, employer-sponsored defined contribution retirement plans have relied on target-date funds (TDFs) as a core investment option. In many cases, these funds also serve as the plan’s Qualified Default Investment Alternative (QDIA), the investment automatically assigned to new participants who have not selected their own holdings.

For employers who sponsor defined contribution retirement plans for their employees, TDFs offer numerous advantages to both the company and the employee participants. These include:

• Simplicity in choice and application: Target-date funds offer a simple, understandable, and automated choice for participants. Since the allocation is age or retirement-based, the funds are designed to adjust to lower risk over time in tandem as the participant approaches their designated retirement age. TDF investment and their popularity have grown over the years and have helped to increase plan participation.
• A prudent QDIA holding: As the default choice for new participants, TDFs have helped millions of participants get started with saving for retirement, helping these employees overcome investing anxiety and decision paralysis. For employers, TDFs are viewed favorably by regulators when assessing a plan sponsor’s prudence and oversight.

The Rise of Managed Accounts

While TDFs remain overwhelmingly popular, demand has grown for more personalized options that include greater asset and sector diversification, customization, and the ability to incorporate more individualized data points than the rather limited scope of a selected retirement timeline. 

Managed accounts are portfolios supervised by professional investment managers who direct the asset allocation based not only on retirement age, but also other material financial factors (such as expected pension income or other assets) that target-date funds don’t consider.

One potential fatal flaw of target-date funds is the one-size-fits-all approach that fails to consider relevant investment criteria like the participant’s risk tolerance or investment experience. With managed accounts, portfolios may be tailored to account for these variables among participants, as well as whether accounts are sufficiently large enough to prudently accommodate wider diversification and alternative assets.

In essence, including managed accounts in a plan may allow for similar types of personalized investment advice that may be found with traditional financial advisors but in a more scalable and cost-efficient manner. Depending upon the composition of the participant demographic (for example, a high percentage of higher-balance accounts with older, experienced employees with more complex personal financial situations), managed accounts may serve as a favorable option for those seeking a more sophisticated solution to achieving their retirement savings objectives.

Pros of Managed Accounts

In addition to the ability to develop a highly personalized strategy, managed accounts offer several other advantages:

• Comprehensive advice: Plans may include an advice component that allows participants to interact with a financial advisor, something still highly desired among older participants. This feature can help to alleviate investor anxiety and emotionally based investment decisions, as well as provide clarity and objectivity.
• Flexible investment management: Today’s investors are well aware of the many alternatives to traditional stocks and bonds and increasing their interest and further participation may require the ability to diversify their investments with such alternatives. In addition, the ability to periodically rebalance or adjust allocations based on market conditions may also be desirable features.

Cons of Managed Accounts

Managed accounts do come with drawbacks, however, that ought to be considered in plan design or upgrades:

• Higher cost: Of course, with more features and services comes greater expense, especially for those with higher account balances if fees are percentage-based.
• Participant engagement: One feature of TDFs is the general “hands-off” nature of the investment. Managed accounts, on the other hand, require the participant to, well, participate, by providing additional personal financial information, preferences, and objectives, etc., to fully realize the benefit. Many could fail to do so.
• Increased plan sponsor fiduciary responsibility: Increased fees and complexity means employer sponsors need to exercise thoughtful care, due diligence, and document decision-making when implementing a managed account feature within their plan. Doing so could help avoid future adverse issues with regulators, auditors, and dissatisfied participants.

In summary, even if implemented as a hybrid solution with TDFs, managed accounts offer a flexible alternative investment solution for those participants desiring a more sophisticated, personalized approach to retirement savings and investment within their employer-sponsored plan. 

Plan sponsors interested in upgrading their plan or implementing a new one would be wise to work with qualified benefit consultants who can offer customized plan design tailored to company objectives and resources as well as a good match with participant goals and demographics.

Are You Maximizing the Potential and Cost Efficiency of Your Benefits Program? Talk With Us.

Are you ready to upgrade to a new standard for your benefit planning and company retirement plan? Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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.

By Mark Olsen, Managing Director at PlanPILOT

There’s little doubt that company culture and workplace benefits are undergoing a profound evolution today. As younger generations become a greater part of the workforce, companies will need to adjust and adapt their benefit programs to their needs if they want to retain young talent.

One area that PlanPILOT first examines for clients in this regard is the company-sponsored retirement savings plan. Younger workers may feel more pressure to depend upon their own savings and investments to secure a financial future instead of Social Security. In addition, many features may be added that address their own particular needs (such as paying down student loan debt) and their values (such as socially-based investments).

Here are recommendations that may appeal to younger workers.

Make Saving for Retirement Easier

While younger workers may be quicker with technology and have a head start on investing than their parents did at the same age, they still may need assistance in getting started and navigating the ever-changing investment world. Consider implementing these tools:

• Auto-enrollment: Even small payroll deferrals can help get a retirement account started and build confidence that regular contributions and compounding can work. Get younger eligible workers started, especially if you can also provide a matching contribution.
• Matching contributions: Don’t be stingy with the employer match. A 6% salary matching contribution sounds a whole lot better than 3%, even to a younger person.
• Financial wellness and investing education: Help younger workers make sense of a changing investment world with interactive web-based educational tutorials, webinars and videos. Bring in financial experts who can not only discuss investing, but other relevant topics, such as debt management or a first home purchase.
• Implement student loan match programs: Younger workers face a dilemma in whether to contribute to their retirement accounts or pay down student loans and forgo the employer match. To make the choice easier, the SECURE Act 2.0 allows for employers to make matching contributions based upon the worker’s student loan repayments instead of payroll deferrals to their retirement account. The worker gets the best of both choices.

Enhance the Plan’s Investment Menu

Limited choices of fee-heavy insurance-based mutual funds are financial dinosaurs in the retirement plan space. Make sure your plan offers modern features to attract young workers’ attention.

• Offer a Roth Option: Younger workers may not need the annual income tax deduction as much as they want tax-free retirement resources. Include a Roth 401(k) feature to allow this choice. SECURE 2.0 also allows employees to designate their employer match and nonelective contributions to a Roth contribution within their account.
• Include index-based investments: Actively managed mutual funds are still the predominant type of investment holdings within retirement plans, but low-expense index-based funds and “exchange-traded funds” (ETFs) are growing in popularity. Younger workers are well aware of these advantages and may prefer index funds.
• Consider adding socially responsible investment choices: Today’s younger generation may be more socially and environmentally aware and want their investments to reflect their values. Environmental, social, and governance (ESG) investments consider factors such as environmental and societal impact when choosing holdings—something younger people consider important. 
• Increase the “menu” of investment choices: A major complaint about older plans is the limited choice of investment options, particularly in the fixed-income space. Make sure your plan includes a reasonable variety, perhaps with some alternative asset classes that may help with diversification objectives.
• Include target-date retirement funds: Target-date funds (especially as a default investment choice) allow a one-choice solution for those inexperienced with investing and may reduce enrollment anxiety. These funds provide wide diversification and a time horizon-based allocation that adjusts to a more balanced or conservative selection as the participant gets closer to their anticipated retirement age.

Implement Technology Tools and Features

Today’s younger workers live in a technology-based world. It’s how they communicate with each other and organize their lives, particularly through their smartphone. Any aspect that cannot be accessed or managed via their phone will be a hindrance to them.

• Your retirement plan should be tech-friendly: Plan features need to include an “app” for quick retrieval with a thumb press and access via a user/password app as well.
• Easy to find and read statements or change investment choices: As Steve Jobs demanded with his 3-click rule for Apple products, make sure participants can find what they want in their account easily.
• Include video tutorials or education materials: Younger participants embrace TikTok not only for entertainment, but to access and share information. Capitalize on this by including instructional or other types of videos to disseminate information or help them learn how to best utilize their retirement plan benefits.

In conclusion, by understanding the needs and preferences among younger workers, employers can demonstrate their commitment to their satisfaction by offering relevant features and enhancements to encourage retirement plan participation and retain young talent. Plan sponsors can also help fulfill their fiduciary obligation for proper oversight and management of their retirement plan and be confident they’re not missing important deficiencies that could hamper their plan’s effectiveness with their young workers.

We Can Analyze Your Plan and Improve It

Are you ready to upgrade to a new standard for your benefit planning and company retirement plan? Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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.

By Mark Olsen, Managing Director at PlanPILOT

Business owners who actively measure and analyze their business are known to use KPIs (key performance indicators) to evaluate the efficiency and effectiveness of their operations. In a similar vein, plan sponsors of all types would be wise to also use KPIs to evaluate whether their retirement plans are truly providing participants with the tools, features, and means to fully utilize the plan in pursuing retirement success.

One of the core services we provide at PlanPILOT is assessing retirement plans to align with plan sponsor objectives and to help maximize the return on investment for the sponsor. In this endeavor, we utilize many types of KPIs to understand and measure the health of retirement plans, find potential gaps, and develop recommendations for upgrades or a plan redesign.

What Are Key Performance Indicators?

Key performance indicators are a collection of data points that provide a consistent method for measuring, analyzing, and monitoring the well-being of a program; in this case, a company or retirement plan. In the business world, KPIs normally measure data obtained in marketing programs, distribution operations, point-of-sale initiatives, and human resources procedures. 

With the data, especially when collecting meaningful data and over time, experienced analysts can measure the results of a specific program or initiative to determine whether the results suggest success or ineffectiveness. Using KPIs and data metrics in a retirement plan may differ from a business, but are just as important to achieve successful outcomes. Let’s look at four of these critical areas.

Plan Participation

Unlike in the movie Field of Dreams, “…if you build it, he (they) will come” doesn’t always work with retirement plans. Just having a plan isn’t enough; whether and how many of the eligible employees are fully participating is the crucial question. Within this KPI, here are some data points that can indicate participation effectiveness or problems:

• Participation rate: Measures the percentage of eligible employees in the plan.
• Deferral rate: How much of their compensation are participants deferring to their plan account.
• Demographic participation: Breaks down participation by age, demographic group, and length of employment; gaps in certain areas may indicate a need for greater education or communication.
• Employer contributions: How much the plan sponsor is contributing in match and profit-sharing and whether this benefit is being maximized by participants.

Financial Health

Assessing the financial health of a plan is important, both for the longevity of the program and for it to meet both the employer’s and participants’ objectives.

• Plan expenses: Is the plan cost effective? Are administrative or operating expenses excessive or in line with industry standards, relative to the benefits provided? Here is a study on how a plan sponsor may address fees within their plan.
• Return on investment: Is the plan sponsor realizing a good ROI per employee or participant? This data metric should look to demonstrate how the plan and its benefits are helping in employee satisfaction, retention, productivity, and other objectives.
• Investment performance: Relative to any given market environment, are the plan investments performing compared to reasonable benchmarks and are there better choices available?
• Average account balance: Given parameters such as compensation, deferral rates, and tenure in the plan, how do the average account balances measure up?
• Loans and withdrawals: Measures whether participant loans or pre-retirement withdrawals (hardship or otherwise) are detracting from plan effectiveness in meeting retirement readiness goals.

Participant Behavior

• Investment behavior and asset allocation: Measures how participants are managing their accounts, including the use of target-date funds and whether accounts are properly diversified. 
• Participant satisfaction: Gauges whether participants are satisfied with the plan benefits and its effectiveness in helping their retirement readiness.
• Employee contribution rate: Data that indicates whether participants understand how to maximize contribution limits, employer match, and if they are doing so.
• Rate of return: Given levels of risk tolerance, are participants achieving a satisfactory long-term rate of return on their plan account and investments?
• Participant retirement readiness: Analyzes whether employees are on track to meeting their prescribed retirement goals.

Other Important Metrics

There are other areas where the success of a retirement plan may be enhanced or improved.

• Administration efficiency: Measures how well the plan is administered; as an example, here is a PlanPILOT case study that focuses on this aspect.
• Retirement claims processing: Measures the amount of distribution requests over a time period and how efficiently these requests are processed.
• New plan options or benefits: Analyzes the implementation of new features to the plan and how well or quickly participants add these upgrades to their accounts.
• Replacement ratio: Assesses the percentage of pre-retirement income that is replaced by actual retirement income.

In summary, by understanding, collecting, and analyzing relevant performance indicators on a regular basis, plan sponsors can help fulfill their fiduciary obligation for proper oversight and management of their retirement plan and be confident they’re not missing important deficiencies that could hamper their plan’s effectiveness.

We Can Analyze Your Plan and Improve It

Are you ready to upgrade to a new standard for your benefit planning and company retirement plan? Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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.

By Mark Olsen, Managing Director at PlanPILOT

Economic uncertainty (such as we’re feeling today throughout the country) has a pervasive effect not only on business in general, but on the behavior and participation of employees enrolled in their company’s retirement savings plan. As an example, in a study released in the Journal of Pension Economics and Finance, researchers estimated that changes in behavior of a young participant during the Great Recession of 2008 could potentially decrease their retirement account value by as much as 8% by age 62.

At PlanPILOT, our experience shows that plan sponsors who are aware of these headwinds to effective retirement savings can prepare ahead of time to lessen the effect on employee participation. Better plan design, enhanced features, and thorough monitoring can all help lower impacts on participants.

Let’s take a look at the various ways economic downturns affect participant behavior.

Changes in Participant Contributions

Not surprisingly, economic downturns and recessions trigger uncertainty and reflexive defensive financial behavior in most consumers, especially those who heavily depend upon a weekly paycheck to meet their living expenses. The daily avalanche of media exposure and economic commentary that may suggest or forecast economic troubles only fan the flames of this uncertainty and instinctual fear among employees. 

As a result, just as consumers naturally reduce spending, participants may be inclined to reduce current contributions if they fear they could have their work hours reduced, lose their job, or rising consumer prices may impact their ability to pay their monthly bills. This could incline participants to reduce their regular contributions, both to increase emergency savings and as a behavioral reaction to perceived (or real) threats to basic economic survival.

In addition, not only might eligible employees decline to enroll in the retirement plan during recessionary periods (despite attractive benefits, such as the employer matching contribution), those that do may be reluctant to choose a meaningful contribution rate during recessionary or other difficult periods, due to anxiety over committing too much of their paycheck at the time.

Impact on Employee Management of Their Account

Recessions and other economic declines often catch the consumer by surprise. These periods typically follow surges in consumer spending, heightened credit card and other consumer debt balances, and looser lending practices. As a result, when money becomes tight at home, participants can find themselves in a financial pinch in managing their debt payments and living expenses. This often leads to participant inquiries about loans from their retirement plan and hardship withdrawals. 

Since such distributions lower the invested balances of the participants’ account, the net effect is a loss of compounding accumulation and lower probability of the participant meeting their retirement objectives. Participants sometimes justify their withdrawals and loans by rationalizing they will make it up later, but this seldom occurs, due to the same behavior impediments that often interfere with getting employees to enroll in the first place.

Unfortunately, loans and hardship distributions also occur during troughs in the market cycle, when account values have declined. Withdrawals at this inopportune time therefore have a greater impact on future wealth accumulation, since it may take several years of future growth to make up what has been lost by the distribution.

Loss in Account Value Affects Behavior Too

Since defined-contribution retirement plans (e.g., 401(k) or 403(b)) have participant savings and contributions invested in the financial markets (via exchanged traded funds or mutual funds), market pullbacks and volatility can have a significant effect on participant behavior as well. 

A declining stock market can cause participants to either revise their contribution amounts (thinking they are contributing to a losing effort) or to reallocate their current holdings to a more conservative portfolio mix (potentially at an unfavorable time to do so). This reactionary behavior can be detrimental to long-term investment returns and retirement goals.

How Plan Sponsors Can Provide Support

There are many ways a plan sponsor can support participants when economic turbulence occurs. Many of these strategies are not difficult to implement and could go a long way in boosting employee morale and enthusiasm for the plan itself and in the workplace.

• Communication: Communicate with employees. Let them know management is well aware of the difficulties everyone is facing in a down economy. Summarize steps the company is taking to assist and support the workforce. Outline new initiatives, features to benefit plans, and resources provided by the company.
• Emphasize educational programs: Whether existing programs or new ones to be added, alert and promote educational workshops, webinars, and other information that could help participants with their financial issues and solutions that may be available.
• Upgrade or implement retirement income planning resources: These programs may help employees understand “how the numbers work” and the possible outcomes before making crucial financial decisions (such as adjusting account allocations or contribution amounts). 
• Provide counseling: Many times, employees are not experienced with financial matters to make sound decisions or need qualified expertise with money matters. Provide company-paid debt counselors or financial professionals to meet with participants and answer questions or provide guidance.
• Upgrade retirement account resources to include features to help with concerns or anxiety in difficult market conditions: These could include rebalancing functions, auto-rebalancing, target-date default investment choices, as well as specific articles that address how to approach and navigate through a down market period.
• Review the retirement plan provisions: Are the hardship withdrawal and account loan procedures clear and understandable? Should there be more flexibility or choice for the investment options? Does the plan need an upgrade to reflect current laws and rules or to implement better features and resources?

Some or all of these initiatives can demonstrate the plan sponsor’s commitment to the company’s workforce and participants and foster goodwill and a more positive work environment during difficult periods.

Utilize Expertise to Design an Effective Plan or Improve It

PlanPILOT is uniquely positioned to help employers customize and design retirement benefit plans that meet your needs and objectives. Our mission is to deliver comprehensive advisory services that help plan sponsors meet and exceed their fiduciary responsibilities by providing the proper risk management solutions and independent advice they need and deserve.

Are you ready to upgrade to a new standard for your benefit planning? Reach out to me at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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.

By Mark Olsen, Managing Director at PlanPILOT

Although participation rates in company-sponsored retirement plans continue to slowly increase, the pressure on employers to encourage and increase participation remains. Recent reports indicate an astonishing 83% of surveyed employees have regrets about retirement plan decisions they’ve made, 41% plan to work longer than expected, and 83% also plan to work after career retirement. 

It might be surmised that a significant cause of this worker angst is the current investment environment. In truth, however, this lack of “retirement readiness” has been building for some time, even during periods of favorable market returns. As we discuss often at PlanPILOT, designing and building a solid retirement plan for your employees is one thing; getting them to engage and fully participate is another. For employer-sponsored retirement plans, it’s not simply a “Field of Retirement Dreams,” where if you just build it, they will come. Here are our top strategies to encourage employees to maximize their benefits.

Why Employee Communication Matters

Communication with your employees is critical to fostering a productive, satisfied workforce where employees feel secure in their jobs and appreciated. Secondly and especially in today’s investment, economic, and employment environment, workers may be uncertain and anxious about how current events may impact their retirement in the future. They may therefore be more likely to turn toward their employer for guidance and options.

Create an Effective Communication Plan

Participation and effectiveness tends to increase when workers feel a sense of ease in understanding how their retirement plan works and is accessed, the short-term and longer-term benefits of participation and if these features are communicated in simple terms that can be readily understood and acted upon.

This includes a year-round calendar of notices and encouragement, repeated reminders of important deadlines (including those for enrollment and tax filing), and announcements of special events well in advance, such as educational live workshops or coming webinars.

Implement Multiple Communication Channels

Employers need to remember that their workforce could be made up of diverse demographics who prefer or use contrasting channels of communication. While younger employees may be amenable to text or email messaging, older workers may prefer literature or other forms of communication, such as live meetings, webinars, or one-on-one discussions with HR staff.

In addition, the changing nature of the workplace requires multiple avenues for employees to receive and access retirement benefit information. Remote work and non-traditional working hours are here to stay for many companies and industries, so in-house live workshops or a trip to the HR department, for example, may not be effective for these employees.

Understand Your Workforce

Recognize diverse levels of financial literacy: Customize your communication about your retirement plan to accommodate varied levels of understanding about money matters

Tailor communications and education for different financial situations: Your senior leadership team has different financial needs and understanding than your other employees. Accommodate these needs with appropriate levels of discussion and description about their benefits to maximize relevance and engagement.

Best Practices for Effective Communications and Participation

Use simple and inclusive language: Retirement benefits can be complex, especially to new hires or those without financial education or experience. Break down complicated concepts, avoid the use of “jargon” and technical terms. Use simple examples and language, and be mindful of potential cultural differences and language barriers.

Provide multiple platforms to explain programs and benefits: Implement email, intranet, and mobile apps for easy access by those who are comfortable with technology. At the same time, provide physical literature, such as brochures, newsletters, and public notices in the workplace for those who may not have access or are uncomfortable with such technology, including face-face or virtual meetings with knowledgeable HR staff or other experts for those who prefer the human touch.

Offer various financial education and workshops: Create education programs that not only explain the details of plan benefits and how to maximize them, but also on how to enroll, make choices among the myriad of options and best practices of monitoring plan accounts. Encourage questions and hold special relevant and topical events that enhance employee financial education. Such topics could include discussions on account allocation, maximizing health plans for every stage in life, how to pay for college costs, debt counseling, and effective tax or estate planning.

Utilize alternative presentation methods: Use infographics, charts, videos, and active character illustrations and examples to make complex concepts easier to understand. Have experts discuss real-life experiences and share stories that explain and illustrate the impact of active retirement planning (or the lack of it).

Include employee mentors and ambassadors: Select and train leaders within the workforce who can not only assist in guiding and encouraging participation amongst their fellow workers, but who could also function as ambassadors for them, communicating with management about worker needs and upgrades that may be effective in addressing needs and improve enrollment within the plan.

Encourage feedback and carefully monitor participation: Measure the effectiveness of your communication programs by encouraging feedback from participants. What are they excited about or what is missing that would enhance your plan? Conduct surveys and interviews to glean feedback about what is effective and working, and what isn’t. Make both verbal and written surveys open-ended to allow workers to express themselves, rather than simply choosing numbers on a grade spectrum or the often ineffective “always, sometimes, never” answer choices.

Utilize Expertise to Design an Effective Plan and Promote It

PlanPILOT is uniquely positioned to help employers customize and design retirement benefit plans that meet your needs and objectives. Our mission is to deliver comprehensive advisory services that help plan sponsors meet and exceed their fiduciary responsibilities by providing the proper risk management solutions and independent advice they need and deserve.

Are you ready to upgrade to a new standard for your benefit planning? Reach out to me at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.

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.