Benefits and Compensation

Looking at Plan Performance Through the Lens of Different Groups

Yesterday, Laraine McKinnon, defined contribution director at investment management company BlackRock, provided some insights on legacy 401(k) plans that may have fallen out of date. Today, her thoughts on forecasting outcomes by groups.

Any good data analysis allows for close examination of different groups within the data, McKinnon says.* For example, a plan sponsor may want to compare how well the plan is working for younger employees versus those who are closer to retirement. “For a few of our large clients we have taken a close look at participant data and analyzed it by cohort,” she says.

“For example, a sponsor may want to see the information for employees born before 1964 and those born after. Then you can see that some participants have too much or too little invested in the stock market or in cash, based on their ages and in comparison to a benchmark. This kind of analysis points out areas of risk, or at least potential concern, that may be compounded over time.”

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New App Enables Modeling Scenarios

McKinnon mentions that BlackRock is working on an app that will add more capabilities to their analysis tools. “The tool will be available for select plan advisors so they can model scenarios involving plan changes they’re considering,” she says.

“The advisor would have the ability to show what would happen to account balances if the plan sponsor increased the employer match from 3% to 6%, or if they auto-enrolled everyone so they started saving earlier, or moved people out of company stock and into a target date fund. There are lots of options, and each can have an impact on the future for participants.

“Sponsors could view a bar chart or a pie chart that gives details about the suggested changes. It would show the replacement ratio they select, how much the participant can expect from Social Security, and how much they would need to have in savings.

“For instance, maybe a person’s Social Security is expected to replace 42% of income, and they are only on track to replace another 6% with their 401(k) savings. The plan sponsor could auto-enroll them at a higher default rate, move them to the qualified default investment alternative (likely a target date fund) and auto-escalate them. By doing that, they could increase their 401(k) savings rate to 35%. It can make a big difference.”

*BlackRock is not recommending any security or providing advice through McKinnon’s participation here and also wishes to make clear that investing involves risk.

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1 thought on “Looking at Plan Performance Through the Lens of Different Groups”

  1. This info is especially relevant in light of the Supreme Court’s recent ruling in an ERISA case (Tibble v. Edison Int’l).

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