By Bill Karsten, Senior Consultant at PlanPILOT
Investment oversight and plan governance play important roles in returns on investment and can impact employee retirement readiness. In this case study, we show an example of how an independent advisor can illuminate opportunities to improve outcomes and drive greater engagement.
The Client
The client is an industrial engineering company specializing in large-scale manufacturing and material handling solutions. PlanPILOT was engaged to provide an independent third-party assessment of the plan design, perform due diligence on the existing recordkeeping solution, and evaluate the performance of the plan’s investment funds. The client had previously relied on their recordkeeper for oversight and review of their plan.
Research & Findings
Based on the defined objectives and the client’s concerns, our team conducted the following independent research:
- Performed an in-depth analysis of their target date funds to confirm they served as an appropriate default investment option for the plan
- Compared the plan’s target date funds against other top-performing target date series
- Compiled industry data to assist the client in assessing several plan features, including their matching formula, vesting, auto-enrollment, and auto-escalation
- Conducted thorough due diligence on the recordkeeping services and pricing
The committee gained a clearer understanding of the plan’s target date funds and recordkeeping services, and our findings affirmed that both continued to be a good fit; no change was made to either.
A thorough investment review found that 15 of the plan’s 17 investment options were the recordkeeper’s funds, and two of the plan’s funds were flagged for failing to obtain a 60% or better rating on our scorecard. Based on our recommendations, the client added 3 low-cost index fund options and replaced 5 actively managed funds with alternatives showing superior long-term risk, return, and qualitative characteristics. 15 months later, our team found that the fund performance based on our scorecard had increased from an average of 75% to an average of 89%, with no funds falling below 60%.
Engagement, Performance & Retirement Readiness
The client’s overall participation rate is 55%, with a deferral rate of 9.5%. These data points identified a need to focus on increasing participation rates (rather than increasing contribution rates for participating employees). We compiled industry comparison data to examine the participation rates of companies that utilize auto-enrollment and auto-escalation plans. The data showed not only a higher participation rate (85% as compared to 50% for companies without auto-enrollment or auto-escalation) but also a higher contribution rate (increasing from a range of 6-7% to a range of 10-13%).
Any employer can benefit from an independent third-party review of its plan structure and policies. As our team found in this case, conducting due diligence on a company’s existing solutions for recordkeeping, administration and investment options can either uncover opportunities for improved outcomes or validate the fit of existing solutions.Call us at (312) 973-4914 or email bill.karsten@PlanPILOT.com to discuss how we can work with your organization.
About Bill
Bill Karsten is a Senior Consultant, with over 24 years of financial industry experience, assisting financial officers and business professionals with managing and reducing risks inherent in their organizations. His key areas of expertise include plan governance, investment oversight and participant education, exclusively serving private universities and colleges. Additionally, Bill assists his clients with investment recommendations and related participant communication and education aimed at improving outcomes for their faculty and staff.