Nearly everyone agrees 401(k) plan sponsors should measure their plans against their peers using independent and credible benchmarks (see "Benchmarking: The Key to a 401(k) Plan Sponsor's Fiduciary Compliance Review," FiduciaryNews.com, January 24, 2012). Such a self-assessment, conducted periodically, can help 401(k) plan sponsor reduce the risk of personal fiduciary liability and help build a better retirement plan by identifying what the plan sponsor does well, what needs to be improved and what needs to be changed or eliminated.

But if benchmarking is such a great idea, why do so few 401(k) plan sponsors actually do it? Don't plan sponsors use similar techniques in other areas of their organization? Isn't self-assessment one of the hallmarks of good business practices? What's holding back otherwise competent executives from undertaking a standard procedure on one of the most important benefits they provide employees?

Two reasons appear to be the cause of this managerial omission. First, for too many 401(k) plan sponsors, monitoring their 401(k) plan just isn't in their job description. Yes, they're responsible for the plan, but the same kinds of objectives, action items and evaluation criteria they use for their primary function doesn't appear anywhere in their personnel performance review materials? Face it, their 401(k) duties represent merely a part-time job that doesn't pay them anymore if they perform related tasks or if they don't. This is particularly true for smaller companies. They can't afford to pay personnel dedicated to managing employee benefits.

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The other reason, and this applies to both large and small companies, is that 401(k) plan sponsors don't have a good model for benchmarking. Some feel they spend too much time focusing on investment analytics. Some feel they are too trusting of conflicted service providers. Some merely think there's no good source for reliable comparative data.

The solution to both these obstacles lies in a simple device used every day by schools across the land – the Fiduciary Report Card (see "Are 401(k) Plan Sponsors Making the Fiduciary Grade?" FiduciaryNews.com, January 25, 2012). A report card is more than a tool, it's an assessment system. By defining what we're measuring (in this case, the five areas of fiduciary liability), 401(k) plan sponsors can create the foundation of a grading system they can use to both measure the success of the plan and evaluate those responsible for running the plan.

The bigger hurdle, though, is convincing 401(k) plan sponsors they need to obtain comparative data from credible, independent sources (see "The Best Way 401(k) Plan Sponsors Can Benchmark Their Plans," January 27, 2012). This usually means someone other than their service providers. After all, you wouldn't ask the fox to guard the hen house, would you? Plan sponsors can hire an independent fiduciary to handle this. Better yet, plan sponsors can make sure all their service providers act in a fiduciary capacity. In that way, they can all look over each other's shoulders.

But there are other either free or low-cost means to benchmark a 401(k) plan. Firms like BrightScope or books like The 401(k) Averages Book allow plan sponsors to compare their plan with the collective data of firms near or at their size. Once the DOL's new Fee Disclosure Rule kicks in, expect to find more services and independent rating agencies, especially if the 5500 form is changed to follow the Fee Disclosure Rule. Once this data is part of a formal filing, it can be fed into a searchable system, making it easier for 401(k) plan sponsors to confidently benchmark their plans.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).