Chapter 20. Defined Contribution Plan Effectiveness

Typically, you as the plan sponsor are concerned with reporting to your plan participants, who justifiably want to know how they are doing. It is much less common for sponsors to be concerned with metrics of the plan's aggregate effectiveness, but you should be. So this chapter deals with how to measure and track the effectiveness of a DC plan. It is part of sound plan governance to have clear objectives, to determine metrics for measuring your progress toward those objectives, to use those metrics on a regular basis, and to make adjustments to the plan based on these results.

Before we can develop metrics for plan effectiveness we must ask the question: effective at what? For the sake of this chapter, we are going to assume an overriding plan objective: to facilitate maximum retirement wealth accumulation for the participants.

This is not the same thing as ensuring an adequate postretirement income, for (at least) two reasons. First, most individuals are participants in a given plan for only a fraction of their overall working career. They will probably accumulate wealth in several other places and consolidate these wealth sources when they reach retirement. The goal, therefore, for these participants is to help them maximize their wealth accumulation while they are in your plan. That is your contribution to their income adequacy down the road. Second, society is still on the cusp of determining how much responsibility the plan ...

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