There are five red flags defined contribution plan sponsors should watch for when evaluating their plan performance, according to research by Judy Diamond Associates.
The flags indicate whether a plan is underperforming, is poorly designed or has reached certain thresholds that suggest it may need new services.
5. Corrective distributions issued: Judy Diamond found 63,349 plans that fell into this category. Plans that issue corrective distributions may be experiencing flaws in the way their plans were designed or rolled out. Participation rates and employee contribution levels at these plans may be lacking and they may be receptive to better advice, education and products from new providers.
4. Reduced employer contributions: Judy Diamond found 63,694 plans that reduced their contributions. Plans that reduce their employer contributions may benefit from better plan design.
3. Plan recently terminated: Judy Diamond found 68,222 plans that fell into this category. Recently terminated plans may offer advisors opportunities to rollover participants into individual retirement accounts.
2. High average account balance: Judy Diamond found 109,287 401(k) plans that fell into this category. Having a high average account balance per participant indicates that there may be participants who are nearing retirement and approaching the need for new, individual financial advice.
1. Bottom 10 percent in employer contributions: In its research Judy Diamond identified 184,442 plans that fall into this category. The bottom 10 percent is calculated based on the value of the contribution, not the number of plans offering each value. That means that a clustering of plans around certain values, especially zero, can result in more than 10 percent of plans offering employer contributions ranked in the bottom 10 percent by value.