WASHINGTON — The most popular way to save for retirement is through a company-sponsored plan, such as a 401k. But not all of these plans are created equally.
Employers determine many of the features that make one plan better than another, like whether they match a certain amount their employees’ contributions, what investment options are available in the plan and how much of a bite investment and administration fees take out of their employees’ returns.
So how can you know whether your 401k plan is good, mediocre or scraping the bottom of the barrel?
There are a few tools available that will let you see how your company’s 401k plan stacks up against other plans. Two of the best that are available for free are offered by Bloomberg and BrightScope.
Bloomberg’s 401K Analyzer:
If you want a quick analysis of your plan, then I suggest you try Bloomberg’s simple but effective 401k Analyzer. The tool asks the question, “How good is your 401(k)?” It walks you through 11 questions to determine how your 401k ranks against plans offered by top corporations in the S&P 500.
While this is not an exhaustive assessment by any means, the tool is engaging and easy-to-use.
Based on a possible 100 points, Bloomberg rates your plan on several key factors, including whether your company provides a match and how generous it is, if they provide additional contributions such as profit sharing, what investment options are available, how long employees have to wait to be vested in these contributions and whether they offer automatic enrollment.
Points are deducted if a company’s match is paid at or after year-end, if they make employees work for one year before receiving the company match or if matching funds must be used initially to purchase company stock.
Once an employee has provided some basic information, they can see where their company’s 401k ranks against Bloomberg’s top 50 S&P 500 company 401(k) plans, based on the generosity of their plans for a new employee.
The entire list of these top 50 companies is available, and anyone can see how Bloomberg scored them on each section. Conoco Phillips tops the list with a score of 85. Google comes in at no. 8, Apple ranks at no. 28 and Amazon is no. 50.
BrightScope is another great option to evaluate a company’s 401(k) plan. As the largest rating company for corporate and government 401k, 403b and 457 retirement plans, they provide plan ratings and investment analytics to participants and plan sponsors.
Brightscope developed a proprietary algorithm which goes much deeper than Bloomberg’s rating system. It analyzes more than 200 points of data then prescribes an overall rating of that plan compared to a peer group (essentially plans in the same industry with similar numbers of participants and assets in their plans).
As an example, Google’s 401k savings plan received a rating of 88 points out of a possible 100, just two points below the top-ranked company in its peer group.
One of the most useful and eye-opening sections Brightscope offers is its “plan component ratings.”
Plan fees have been a hot topic lately since plan administrators and investment fund companies have not made it easy for participants to know all the fees they may be paying. Those fees can eat into a participant’s returns and can have a significant impact on the amount they have saved by the time they are ready to retire.
Brightscope looks at all of the investment and administrative fees and assigns an easy-to-understand rating, such as ‘high fees’ or ‘lowest fees.’ In Googles case, they have the best ranking of lowest fees.
The “plan component ratings” also include scores for a company’s generosity, participation rate, salary deferrals and account balances. If you want to dive into the weeds, Brightscope includes the latest 5500 for each company.
Much of Brightscopes rankings are based on this publically available information, but since the company has already done most of the heavy lifting, it’s easier just to look at the ratings. The one downside is that Brightscope rankings are not available for many smaller companies.
Employers know that a good retirement plan makes it easier to hire and retain the best employees. If you have a mediocre 401k, shedding light on how it stacks up to other companies may be just the ammunition you need to nudge your HR department to make improvements.
Your fellow employees will be grateful that you did.