When companies set out to measure how successful their 401(k) plan is, they generally don’t do it based on how comfortably their former employees are supporting themselves in retirement. Instead, employers evaluate how many employees use the plan and whether the benefits offered are competitive with other companies in the same industry. Here is how you could potentially measure the success of a 401(k) plan.
Participation rate. Employers generally measure retirement plan success by calculating the percentage of workers who participate in the 401(k) plan (84 percent), according to a MetLife, Mathew Greenwald and Associates, and Asset International Inc. survey of 127 Fortune 1000 plan sponsors. Companies pay particular attention to whether non-highly compensated employees are utilizing the plan (81 percent).
Savings rate. Almost all 401(k) plan sponsors (93 percent) say that promoting retirement savings is an important objective of their retirement plans. Many employers closely track how much lower income workers are saving for retirement (76 percent). However, less than half (45 percent) of employers evaluate their retirement plan based on the average 401(k) balance. And companies are evenly divided about whether employees are accumulating sufficient assets in their retirement plans—42 percent agree and 42 percent disagree.
Projected retirement income. Workers must transition their nest egg into a stream of retirement income largely on their own. Only about a third (35 percent) of Fortune 1000 companies say one of their primary objectives is to help employees create retirement income for the future. And 82 percent of the employers surveyed say their company does not set income replacement goals for their employees in retirement. Many companies say they are concerned about their employee’s ability to generate retirement income (52 percent).
401(k) match. Employers are also concerned about the proportion of employees taking advantage of the 401(k) match (72 percent). When asked what improvements they would most like their company to make to the retirement plan, the most popular answer was to increase company contributions to the 401(k) (20 percent).
Employee satisfaction. Few employers evaluate employee satisfaction with their retirement benefits. Only a third (34 percent) of plan sponsors have conducted an employee survey to gauge how satisfied employees are with the education and support they receive about their retirement plan.
Competitiveness with other employers. Offering a 401(k) is largely about recruiting and retaining talented workers. Many companies say they provide retirement benefits primarily to attract the best employees in the most cost-efficient manner possible (45 percent), MetLife found. Some companies also say their business needs are served by offering financial resources to support employee retirement goals (20 percent).