PLANSPONSOR - February/March 2019 - 19

DC Plan
Averages
Don't Tell the
Whole Story
MOST defined contribution (DC) plan
sponsors measure their retirement plan's
success by using total average participation
rate and deferral rates, yet this method
may mask issues of certain employee
groups, which need to be addressed.
Instead of applying overall average
rates to their entire eligible employee
population, sponsors should drill down
to statistics of specific demographics,
including generation, life stage and job
position. Approaching retirement planning
across general, overall statistics not
only disregards possible problems within
the plan, it can skew the actual rates,
TALKING POINT
Baby Boomers vs. Generation X
What each group has saved or plans to save
20.5%
18.6%
16.6%
12.5%
10.1% 10.5%
5.5%
11.1%
9.0%
9.1% 9.0%
8.0%
13.0%
15.6%
13.4%
17.5%
■ Baby Boomers ■ Gen X
says Marc Howell, vice president, head
of custom retirement solutions and intellectual
capital at Prudential. Participants
with a large account balance, for example,
can skew the average significantly higher
than what is the reality for participants
without one, he says.
Additionally, if plan sponsors exclude
eligible, nonparticipating workers from
certain statistics, such as average deferral
rate or average account balance, this presents
an inaccurate picture, he says.
" If you look at the mean account
balance of DC plan participants, it might
look very good, but if you were to include
nonparticipants, it would give you a better
sense of what's going on underneath the
plan, " Howell adds. Factoring in nonparticipants
is important to overall workforce
retirement readiness.
Introducing targeted communications
and reaching out to participants by
way of personal one-on-ones can improve
behaviors and benefit both the individuals
and the plan overall. Employing a
general communications strategy applies
only generally to the employee base, and
does little to aid groups of workers with
issues causing poor retirement savings
behaviors, says Doron Scharf, senior
vice president and consulting actuary at
Sibson Consulting.
As participants reap the benefits of
more targeted statistics and education, so
does the sponsor. Such enhanced analysis
reveals whether its plan is entirely effective,
Howell says.
Is the plan helping employees retire
when they want to? If not, sponsors can
investigate and find a solution. Thus,
they can save the company from problems
arising from delayed retirements,
such as increased health care costs and an
inability to hire new talent.
" Being able to go a bit deeper than
looking at total averages of the plan is an
opportunity to help specific employees
and, in turn, improve the plan, " concludes
Jonathan Price, a vice president with
Sibson Consulting. -Amanda Umpierrez
<$65,000
>$65,000 -
$100,000
>$100,000 -
$400,000
Source: Retirement Living Information Center
>$400,000 -
$700,000
>$700,000 -
$1mm
>$1mm - $2mm
>$2mm
Declined to
specify
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