How to unburden plan sponsors as they evaluate 401(k) performance

Retirement plan advisers know that sponsors are carrying heavy burdens from multiple directions. As an event panelist once surmised, 401(k) changes that aren't well received may trigger litigation. Another issue involves understanding plan performance, which often requires plodding through diagrams or dashboards, benchmarking results and re-expressing insights. Given all these moving parts, rethinking comparative performance analytics is the first step toward removing the weight of necessary evaluations.

A simple way to unburden sponsors as they examine their 401(k) plan is to offer a single numeric score. This occurs generally in ratings, often presented as integers from 1 to 5 stars, freeing sponsors from worrying about what lies beneath, say, a 78.9 rating. Such an approach works sometimes, but not when sponsors desire, or can benefit from, more specific insights. 

Read more: Is retirement out of reach? How employers can help workers shore up 401(k)s and savings

Another way is to preserve an overall score but let sponsors pick the weights of the factors that compose the score. But this introduces the perplexing burden of picking weights. Should I weigh X more than Y and Y more than Z? If so, by how much?

One helpful suggestion is to implement a side-by-side comparison table of 401(k) plans (or in the general case, options) arranged in vertical columns and described by one variable per row. Let's consider the following unburdening features.

Compare more than a few plans
A sponsor may want to compare multiple plans, not just two or three. A tool that imposes a small maximum will make users click onto, and back from, multiple query pages and mentally assemble the results. Instead, let users pick up to 10 plans.

Keep all comparisons on a single page
Mentally assembling results from multiple pages is a burden. Sometimes this is due to numerous performance variables. Instead, design the layout so that everything is on one vertical page.

Read more: The new urgency for mitigating 401(k) account cash-outs

Make it obvious who is best and worst for each variable
Don't make users scan an entire row to determine who is best on that variable. Instead, use colors, like green for the best performer and pink for the worst. Do this for both numeric and qualitative variables. Don't use colors for neutral variables such as the total participants, or that mostly reflect past performance, such as total assets. As a side benefit, color lets users scan the entire page to get a good sense of who performs better overall.

Hide any row that varies little
Retirement plans are complex and involve multiple aspects, so performance variables won't be few; they should be comprehensive. But this leads to information overload and more cognitive burden. However, it can be reduced by hiding any row whose values are all the same, or that vary little in the case of numeric variables. Hiding is activated by a single click, and users can experiment and set their own thresholds.

Hide neutral variables
These should be shown by default, but a single click should hide their rows, which reduces data overload and focuses on comparison judgments.

Read more: 4 reasons Americans are unprepared for retirement

Hide variables that aren't of interest
To further reduce data overload, let users hide an entire category of variables. For example, a sponsor may not care about the 24 asset types reported on 5500 Forms, so enable hiding that category with a single click. To achieve this, the variables should be grouped into category descriptions that make sense to the user.

Help users find nearby plans
It can be burdensome to discover other nearby plans that perhaps compete for employees — even with web mapping tools. Make it easy to identify which plans are within a threshold distance (e.g., 10 or 25 miles away). 

Enable final comparisons to other plans nearby and nationwide
A user might choose 10 plans to compare but be left wondering whether they picked the right 10 to begin with. A quick hand-off to a complementary benchmarking tool to assess deeply the quality and performance of a sponsor's target plan removes that burdensome uncertainty.

The performance of an employer-provided 401(k) plan can shed light both on employees' retirement future and on the employer's operational excellence. Unburdening plan sponsors as they compare plan performance can be achieved through technology, user-experience design and greater transparency.

The author acknowledges Dr. Christine K. Cassel  and Andre Lessa for their contributions to this work.