Being a parent offers plenty of rewarding experiences—and time spent coaching my kids’ youth baseball teams definitely ranks among the top.
I enjoy the successes as well as the challenges. Whether teaching a 5-year old how to hold a bat and step up to a tee, or helping a teenager refine their swing, players of all ages always have room for improvement. After all, even the very best Major League Baseball players are only successful about 3 out of 10 batting attempts. My lesson to the kids I coach is always this: Improvement is a continuous journey.
Improvement is also a continuous journey for plan sponsors. As I recently thought about the many engagements my Vanguard Strategic Retirement Consulting (SRC) team had with clients over the years, I’ve found that the best plans are those whose sponsors continuously seek improvement by helping their participants get the most out of the plan’s benefits.
Vanguard Plan Effectiveness Index™ (VPEI) is a tool that can help plan sponsors reach that elite level. VPEI measures three fundamental factors—participation rate, total savings rate, and portfolio construction—to assess how effectively a plan is helping participants save for retirement.
SRC has had many VPEI engagements over the years, and some small changes we’ve recommended are yielding significant results. Here are two examples of how recent VPEI consultations have led to actions benefitting sponsors and their participants:
- One sponsor swept nonparticipating employees into their plan at the plan’s automatic enrollment default rate. The result: Their plan participation rate went from 93% to 99% (an increase of more than 10,000 participants), and the plan’s already impressive VPEI score of 93 rose to 95. (Our median VPEI score is 75.)
- Another sponsor had a VPEI score of 67. Seeking to improve their plan and their score, the sponsor automatically enrolled employees into the plan at a savings rate of 5%, added an annual automatic increase program that increased participants’ savings by 1% each year, and swept in “undersavers” (getting their savings up to the company’s match limit) and nonparticipating employees. The result: Their VPEI score jumped to 84—a 25% increase. More importantly, because of the sponsor’s actions, thousands of employees are now saving more and improving their chances for a secure financial retirement.
At Vanguard, our plan sponsors pose big, important questions every day. And we have great data and analytics capabilities that help answer these questions. In 2016, we delivered more than 250 consultations with VPEI scoring and comprehensive plan design discussions. We’ve assisted these clients with small and big changes alike, and we continue to monitor the progress of these with VPEI.
Because, like great ballplayers, even a great retirement plan can be continually improved.
All investing is subject to risk, including the possible loss of the money you invest.