How do you measure the health of a 401(k) plan?

Averaging account balances is one way. On its own, that can be a deceptive benchmark. Most plans look great in a year like 2019, when equity markets and fixed income posted banner returns.

Principal, which closed its acquisition of Wells Fargo's Institutional Retirement and Trust business last July, has adopted the latter's way to measure plan health. The Wells Fargo IRT Plan Health Index looks at three factors of a plan to determine its health:

1. percentage of a plan's participants that actively participate
2. percentage that save 10 percent or more of earnings
3. percentage that have a diversified account

On balance, plans are improving, according to Principal's 2019 Driving Plan Health report. From 2013 to 2018, participation rates have increased 12 percent, savers with a total contribution rate of at least 10 percent was up 8 percent, and the savers with an appropriately diversified portfolio increased 8 percent, according to data from the 1,900 plans considered in the index.