Investment performance and fees typically get the most attention when plan sponsors try to compare one 401(k) against another. But perhaps these plans should instead be measured against how well they accomplish their intended purpose: the preparation of participants for retirement.

It's a point that had been under discussion before the financial crisis hit. Now, with defined benefit plans becoming more rare and 401(k) plans littering the retirement landscape, it has once again surfaced.

Along with it comes the natural follow-up question: which factors should be considered, if such a benchmarking process is to be undertaken?

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Participation rates, perhaps? How about savings rates?

Rob Austin, director of retirement research at Aon Hewitt, said that the issue "calls into question why employers have these plans in the first place."

Some companies, he pointed out, "don't have a 401(k) plan for a retirement vehicle as much as for a savings vehicle."

The 401(k) was "designed to be a savings plan," he noted. "Twenty-five percent of companies still provide defined benefits, and to look at just their 401(k) plans to compare them with plans at companies with only 401(k)s is … like (comparing apples to oranges)," since the latter plans would be more geared toward retirement than savings.

While most of the employers Aon polls say that the most important measure in determining the success of their retirement plans would look at how well it helped employees prepare for retirement, Austin says not everyone thinks that way.

For example, he said he works with a large retail organization that says, 'We want our program to be competitive, but we don't believe people will come in and work for us for 30 years."

That company is not planning for its 401(k) to provide an adequate retirement. So instead, its 401(k) been "designed as an attraction and retention tool," rather than a long-term retirement tool.

Austin also questioned how a plan might be benchmarked if it's geared toward "people coming in late (in their careers), with a relatively short tenure," instead of younger employees who are much more concerned with what they're going to get now, instead of 20 or 30 years down the line.

Then there's the question of how a plan might be rated. Would a plan at one company that gets 100 percent of employees to save 75 percent of the funds they'll need rank lower than another company's plan that gets 50 percent of employees to save 100 percent of what they'll need, while the other 50 percent don't participate at all?

Also, what about deferral rates, investment patterns, employers' investment choices?

A benchmarking program, Austin said, "would have to be really robust, with lots of actuarial work and assumptions built in. You'd also want to have a variety of retirement ages you'd want to benchmark against: 55, 60, 65, 70 — to see where one employer's outcome would be vs. another's."

That said, interest in benchmarking 401(k)s seems to be growing.

Cheryl Ouellette, specialist master in the Minneapolis office of Deloitte Consulting LLP's human capital practice, said that the larger the company, the more likely it is to have conducted a retirement readiness assessment among its employees, looking at expected income replacement based on tenure, age, salary and other factors.

According to Deloitte's latest 401(k) benchmarking survey, 26 percent of plan sponsors have conducted such a survey. Among companies with 10,000 or more employees, that figure jumps to 40 percent.

Companies are also being more proactive about trying to help employees save enough for retirement, said Ouellette, with 65 percent in the 2012 survey offering individual financial counseling and advice to their employees, and 26 percent paying for financial advice. "That's a big jump, compared with 10 percent in (the) 2011 (survey)," she said.

On the small-company end of the spectrum, said Ouellette, employees were even more likely to get counseling: 80 percent of companies with fewer than 1,000 employees provided it. "Many times in that market," she said, "brokers are involved. They're more likely to be providing that advice, and willing to do one-on-one (sessions)."

Stephen Blakely at the Employee Benefits Research Institute said that, while "this is not an area of focus for us … most industry surveys suggest that this 'trend' is still very much in the 'thinking about' category."

He pointed to a JPMorgan plan sponsor survey in which fewer than half of respondents said that the percentage of participants with account balances on track to replace at least 80 percent of their final salary in retirement was "very" or "extremely important" in their criteria for evaluating plan success.

But, again, some companies are interested in benchmarking. Questions would include the percentage of employees that are on track, based on age, to replace 80 percent of income; the percentage of employees who participate; and how many have outstanding loans from the plan.

"Somewhere between 25-33 percent (of plan participants) have a loan against their 401(k)," said Austin. "If they use it as a savings account and take loans, and their employer designed it as a retirement (vehicle) but employees are not using it that way, you need to know that, so that you can benchmark against others more effectively."

Then there's the human factor. Ouellette said that participants aren't necessarily using all the features designed to help them save more for retirement.

"We had 62 percent (of plan sponsors) indicate that fewer than 10 percent were even using (automatic escalation). One of the biggest issues around retirement readiness is that sponsors are adding features that can help, but participants aren't taking advantage of them," she said. "It's the same as financial counseling and advice; for individual advice, 65 percent of plans offer it, but 73 percent of sponsors said 10 percent or less of participants are actually using it.

"It's been a similar story year over year," said Ouellette. "We're seeing an increase in sponsors trying to do their part, but seeing low utilization (on the part of participants)."

When asked what the primary barrier is to employee use of improvements, she said, most responded that there was a "lack of employee understanding. They're confused."

Perhaps that explains why "84 percent of respondents (said) that improving participant education is either quite or very important," she said; "sponsors are very concerned about that."

Employers with automatic features such as auto enrollment and auto escalation, which take the matter out of employees' hands altogether, had the greatest success, with "over 75 percent indicating that (auto enrollment) has had a positive impact on their plans."

Perhaps that might be the most important benchmark of all. 

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