For HR leaders, finance professionals and retirement plan committees, sponsoring a 401(k) or 403(b) plan is both a valuable employee benefit and an important fiduciary responsibility. Plan sponsors must ensure that their plan operates in the best interests of participants while maintaining reasonable fees, competitive investments and quality services.
One of the most effective ways to evaluate the health of a retirement plan is through benchmarking. Benchmarking allows plan sponsors to compare their plan’s fees, services, investments, and design features to similar plans in the marketplace. The insights gained can help identify opportunities to improve the plan and demonstrate responsible oversight.
What Is Retirement Plan Benchmarking?
Benchmarking is the process of comparing your retirement plan against similar plans based on factors such as:
• Total plan assets
• Number of participants
• Industry type
• Plan features and services
The goal is to determine whether your plan’s costs and services are reasonable and competitive. Benchmarking also supports fiduciary oversight under the Employee Retirement Income Security Act, which requires plan fiduciaries to act prudently and ensure plan fees are reasonable relative to the services provided.
Why Benchmarking Is Important
Demonstrates Fiduciary Responsibility
Benchmarking provides documentation that plan sponsors are reviewing plan costs and services on a regular basis. This process helps support a prudent decision-making framework.
Evaluates Plan Fees
Retirement plan fees can vary widely depending on plan size and service structure. Benchmarking helps determine whether costs such as recordkeeping, advisory, and investment fees are reasonable compared with similar plans.
Improves Participant Outcomes
Benchmarking often uncovers opportunities to improve the plan, such as:
• Lower-cost investment options
• Additional participant education resources
• Enhanced retirement planning tools
• New plan features like automatic enrollment
Even small improvements can have a meaningful impact on long-term retirement savings.
Key Types of Retirement Plan Benchmarking
Plan sponsors typically review several different aspects of their retirement plan during benchmarking.
Fee Benchmarking
Fee benchmarking evaluates the overall cost of the plan relative to similar plans. Areas reviewed may include:
• Record keeping and administrative fees
• Investment expense ratios
• Advisor compensation
• Total plan cost per participant
This type of benchmarking is commonly conducted every one to three years.
Investment Benchmarking
Investment benchmarking reviews the plan’s investment lineup to ensure funds remain competitive and appropriate for participants. Committees often evaluate:
• Fund performance relative to benchmarks
• Expense ratios
• Risk characteristics
• Availability of lower-cost share classes
Investment monitoring is often performed quarterly or semiannually.
Service Benchmarking
Service benchmarking evaluates the quality and scope of services provided by vendors such as record keepers and advisors.
This may include reviewing:
• Participant education programs
• Retirement readiness tools
• Call center support
• Technology platforms and mobile access
• Plan administration support
Ensuring participants have access to strong resources can improve engagement and retirement readiness.
Plan Design Benchmarking
Plan design benchmarking compares your plan’s structure and features against industry norms such as:
• Employer matching contributions
• Auto-enrollment and auto-escalation features
• Vesting schedules
• Eligibility rules
Understanding how your plan compares to others can help ensure your retirement benefit remains competitive for attracting and retaining employees.
Request for Proposal (RFP)
A Request for Proposal is a comprehensive benchmarking process where plan sponsors invite multiple providers to submit proposals for plan services. This process evaluates pricing, services, technology, and overall value.
An RFP allows plan sponsors to test the marketplace and confirm whether their current provider remains competitive. Many organizations conduct an RFP every three to five years.
Final Thoughts
Benchmarking is an essential part of responsible retirement plan management. By regularly evaluating fees, investments, services, and plan design, plan sponsors can ensure their retirement plan continues to provide strong value for participants.
Regular reviews also help demonstrate fiduciary prudence and identify opportunities to strengthen the plan over time.
If your organization hasn’t reviewed its retirement plan recently, now may be the time. Consider working with your advisor or retirement plan consultant to conduct a benchmarking review of your 401(k) or 403(b) plan to ensure it remains competitive, cost-effective, and positioned to support your employees’ long-term retirement goals.
Scott Higgins | AIF ®, CFP®, CPFA®, NSSA®
Financial Advisor
This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine waht is appropriate for you, please contact me directly or consult another qualified professional
Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated. #5299035
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