Few plan sponsors evaluating retirement income replacement ratios

Fewer than a third of plan sponsors measure the effectiveness of their defined contribution plan’s investment offerings by evaluating if projected participant income replacement ratios are being met at retirement, finds a new poll from SEI.

 An overwhelming majority (98%) of plan sponsors measure effectiveness by only reviewing investment performance, which tends to focus on short-term metrics such as three- and five-year performance, not long-term goals.

The lack of focus on meeting retirement income needs comes despite the fact that nearly two-thirds (57%) said the objective of the company’s DC plan was to provide a primary source of retirement income. 

The use of custom target-date funds could rise, according to the poll, with 37% of those surveyed saying their organization is likely or somewhat likely to implement or revise custom target-date solutions in the next 18 months. Currently, 12% use custom funds rather than proprietary or pre-packaged options.

When asked why they don’t currently implement custom TDFs, 49% said concern with added complexity/liability was a reason, while 31% cited a lack of internal resources for implementation and ongoing oversight. Forty-two percent of respondents said their organization would consider outsourcing investment manager selection in some areas of their DC plan. Of that group, 43% said they would do so when implementing custom TDFs. 

The poll, conducted by SEI’s Defined Contribution Research Panel in February 2014, was completed by 285 executives overseeing DC plans in the United States.