Conducting a comprehensive retirement plan review

For years many employers who sponsored a retirement plan simply focused on making their employer contribution each year. Sponsoring a retirement plan today, though, is certainly not a “set it and forget it” proposition. In today’s economic climate, and with government focus on the employer’s fiduciary obligation to a company-sponsored retirement plan and its participants, more and more employers are looking for ways to optimize plan performance and gain fiduciary protection.

As an employer sponsoring a qualified retirement plan for your employees, you want to make sure your plan is in good order — that it meets your retirement needs and those of your employees. Quarterly performance reports give you a good overview of investment performance, but an annual review should include more than just investment gains or losses. A comprehensive annual review of your plan will help you make decisions about those features, provisions, and investments that are working toward your goals for your company-sponsored retirement plan and those that are not. But how do you go about conducting that review?

Your plans’ service providers should be able to help. Experienced providers will be able to pull together reports that will give you a detailed understanding of the inner workings of your plan, and help you decide what to keep and cultivate, and what to change or eliminate altogether. Following is a checklist of reports you should be receiving to conduct an annual comprehensive plan review:

Plan design page – A brief summary of plan terms for quick reference in the context of a periodic review of the investments and certain aspects of the operation of your retirement plan.

Cash flow summary – A review of the contributions, dividends, loan repayments, and loan interest for the plan year, along with distributions, loan withdrawals, and fees paid from plan assets (if applicable).

Net flow summary – A review of contributions and distributions from the plan by plan investment option.

Plan trends summary – A review of assets and asset percentages in the plan by fund, the contributions to each fund by dollar and by percentage, as well as the number of participants invested in each.

Asset allocation by age of plan participants – A review of participant asset holdings by age and asset class.

Participation rates by age of plan participants - A chart providing the percentage of participation in your plan by participant age bands. The national average for participation is between 75-80%.

Average deferral percentage by age – A report breaking down average deferral percentages by participant age bands. Elective deferral contributions are a major (and in many cases, the primary) component of retirement savings for most participants. The age at which participants begin to defer also is important.

Average number of funds by age of plan participants – A report showing the average number of funds by participant age bands. It is an important indicator of whether participants, as a group, are adequately diversified. While not a fail safe, diversification limits exposure to market fluctuations. Understanding and implementing proper diversification among available investment options also optimizes the risk/reward balance.

Average contribution by age of plan participants – A report illustrating the average contribution amount among your plan participants by age bands. Preparing for retirement takes years of contributions and those contributions need to be substantial enough to accumulate an account balance to provide a secure retirement.

Allocation by asset class at a plan level – A report showing the dollar value of each investment in the plan’s menu and the percentage of total plan assets each represents.

Diversification by plan participant age bands – A report illustrating asset class diversification by participant age bands. Understanding and implementing proper diversification among available investment options also optimizes the risk/reward balance and can help target education efforts by participant age groups.

Average loan balance by age groups – A report providing information about plan loan utilization by banded age groups. Loans are a popular feature. The knowledge that deferrals may be “borrowed back” if needed, may encourage hesitant eligible employees to contribute. There is an opportunity cost associated with borrowing from retirement savings.

Fund reports for each mutual fund option in your investment menu including:

• Core fund matrix listing returns, risk, and assets held for each mutual fund option in your investment menu
• Fund ranking by quartile for each mutual fund option in your investment menu
• Asset class coverage for your investment menu
• Score card for each mutual fund option in your investment menu
• Current fund fact sheets for each mutual fund option in your investment menu

Reviewing your plan each year isn’t just wise; it demonstrates the steps you take to satisfy your fiduciary responsibility to the plan and to plan participants. The information you learn during an annual plan review is invaluable, helping you discover trends that deserve careful monitoring or circumstances that warrant a change. You can also discover things that clearly indicate a need for more participant education, or more participant education within certain age groups. The availability of these kinds of reports to you and to your financial adviser will give you the information you need to manage the design of your plan for optimum advantage, plan participation for maximum effect, and plan assets for the best results.

Since 1972 CPI Qualified Plan Consultants, Inc. has provided recordkeeping and administration services to qualified and non-qualified defined contribution retirement plans. With corporate headquarters in Great Bend, Kansas, CPI has 20 offices located throughout the United States. CPI currently partners with the nation’s most prominent investment institutions and mutual fund companies to provide services to more than 3,700 retirement plan clients and their investment professionals. For more information about CPI, visit www.cpiqpc.com or call 800-279-9916, extension 765. CPI is a wholly owned subsidiary of CUNA Mutual Group, a leading insurance and financial services organization.