Using Analytics to Monitor Your Plan

Blog
February 21, 2022

We have previously discussed the benefits of a retirement committee. Now you might ask yourself, what are some methods that we can use to efficiently review our plan? The everchanging landscape of the workforce includes a significant day-to-day workload which limits the amount of time you have available to monitor your retirement plan. You don’t believe you have the time to detail review every transaction that has occurred in the Plan, so now what?

As Plan auditors, we utilize analytical procedures to help create an efficient and effective audit. One primary benefit of using analytics instead of a test of details is the opportunity cost benefit of time savings. Analytics allow us to obtain the necessary audit evidence to form an opinion, but without all the extra time incurred that a test of detail demands.

Whether you perform daily, monthly, or quarterly reviews of your plan, analytics can be utilized to allow you to monitor your plan in an efficient manner. A list of potential, but not all inclusive, analytics are below:

  1. Enrollment
    1. If your internal records note that 50 employees were eligible to join the plan within a given month, you should expect no more than 50 new employees on the payroll register with retirement withholdings. Anything additional would indicate potential early enrollment.
    2. If you have an automatic enrollment provision and your average opt-out rate is approximately 10% (or 90% elect to participate), when you run a new participant report from your third party administrator, you should expect approximately 90% of your eligible employees to enter the plan. If the report generates an amount significantly lower than 90%, that would be cause for additional investigation.
  2. Contributions
    1. Comparing monthly contributions into the plan, and/or the employer match as a percent of the employee contributions (depending on the frequency of your match), for any significant fluctuations can indicate a potential missed remittance.
    2. Comparing the average days to remit payroll withholdings into the Plan to the actual days for individual pay periods can help indicate if a remittance is considered late by the Department of Labor.
  3. Loan interest
    1. Comparing interest as a percent of the average loan balance in the plan on a monthly or quarterly basis (with consideration of any interest rate changes) could help identify improper interest rates used or inaccurate interest accrual calculations.
  4. Distributions
    1. Scan the Plan’s vesting reports. If the Plan has provisions that state participants vest 20% per year until 100%, there should not be vesting percentages that are in something other than 20% intervals.
    2. Scan distributions and analyze the amount of distributions in relation to your understanding of company turnover. Timing can play a factor with distributions, but if significant turnover has occurred, you generally would expect an increase in distributions out of plan assets relative to other lower turnover periods.
  5. Expenses
    1. Most plans have expense agreements providing for fees that are a percentage of plan assets. Monthly or quarterly, depending on your contractual arrangement, you can compare the percent of expenses to average plan assets ratio to other neighboring months or quarters. In addition, you can compare the percentage to your fee agreement to make sure the expenses in the plan appear reasonable. Remember, it is your fiduciary responsibility to ensure plan expenses are not excessive.

 

We understand that time is limited and very valuable within each work day. It is important to understand as a Plan Sponsor that there are certain fiduciary responsibilities that must be adhered to for compliance purposes. Analytics, when used correctly, allow you to effectively and efficiently monitor your plan. The list above are examples, but not a complete list.

If you have any questions on best practices to monitor your plan, please reach out to us and we would be happy to discuss.