Following the first in a series of monthly webinars in October, AXIS Retirement Analytics on Wednesday held a webinar discussing the benefits of benchmarking to fiduciary compliance.
Benchmarking has primarily been used in midsized and large plans, Tom Loch, senior vice president of Castle Rock Innovations, which offers the AXIS platform, said on the webinar. However, Loch, who moderated the webinar, said, with benchmarking, there was “opportunity for smaller plans to present themselves in a new way.”
Benchmarking is not explicitly required in regulations or by the Department of Labor, Edward Lynch, founder and CEO of Fiduciary Plan Governance, said. What is required, he continued, is for plan sponsors to demonstrate appropriate care and due diligence in understanding the fees associated with their plan, what they’re paying for services and whether those services are necessary and the fees reasonable.
“It’s not about the lowest cost,” he said. “It’s about if the cost is reasonable,” adding that independent benchmarking analysis will go a long way in meeting due diligence requirements.
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John Blossom, president and CEO of Alliance Benefit Group of Illinois, noted that while plan sponsors aren’t directed to perform a benchmarking analysis specifically, ERISA does in fact “obligate” plan sponsors to “obtain and carefully consider” pertinent information regarding their plans.
Blossom likened benchmarking to the law of the jungle, but instead of “eat or be eaten,” it’s “benchmark or be benchmarked.” He named four things sponsors should consider as part of their benchmarking analysis.
First, he said, is what do they want to benchmark? Sponsors need to decide if they’re going to benchmark their plan features, participant behavior, costs or performance against other plans. If they’re going to benchmark performance, they need to determine by what standard they’re going to measure performance.
Second, sponsors need to consider what they’re comparing their plan to in the benchmark: the size of the database and degree of segmentation.