Dec 14, 2020
Employers work continuously to improve their retirement plans. Whether through refining the plan menu, enhancing the default option, or adding auto-enroll or auto-escalation features, employers strive to keep retirement plans evolving in ways that benefit their employees.
But are employers measuring the effectiveness of the plan to see if these improvements are working?
Newport has developed an analysis that measures how plan participants are progressing relative to their retirement goals. By gathering research on what other firms consider adequate savings to meet retirement expenses, we are able to perform an independent analysis on the plan.
We use two lenses for examining a participant's "retirement readiness."
The first, more simplified lens, is the retirement savings multiple. Most investors have read various rules of thumb that help them gauge whether or not they are “on track” with their retirement savings. These benchmarks often come in the form of a retirement savings multiple: For instance, a participant might want to have x times his/her current salary in their retirement savings account. However, that’s not always easy to demonstrate.
Newport can work with you to help your clients illustrate retirement savings multiples for their plan participants, showing them how they measure up to the median saver and various benchmarks.
Our second lens involves more complex modeling at the participant level. This involves projecting account balances forward to retirement for each participant, and forecasting retirement income produced by the accumulated wealth. We tailor the analysis for each participant and consider factors such as contribution rate, company match, tenure, expected social security income and current balance.
Finally, we calculate the replacement ratio for each participant and aggregate these at the plan level. A replacement ratio, which is projected income / projected salary, represents the income a retiree receives from their savings as a proportion of the salary they earned at retirement. An analysis of replacement ratios can help a plan sponsor evaluate the “retirement readiness” of their participants, and consequently, the effectiveness of their plan. The analysis is also helpful in analyzing the impact from changes in company match, auto-increase, and other plan features.
To learn more about how we can help you provide “Retirement Readiness Review” to your plan sponsors, contact your Newport representative or contact Newport’s Fiduciary Services at 407-333-2905.
Investment Advisory and fiduciary consulting services are offered through Newport Group Consulting, LLC, a registered investment adviser and wholly owned subsidiary of Newport Group, Inc. For more information about Newport Group Consulting and its services, please visit newportgroup.com or refer to our Form ADV Part 2, which is available by contacting us at 407-333-2905, or visiting our website, www.newportgroup.com.
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