The 401(k) plans many U.S. workers will rely on when they retire are getting a good going-over at BrightScope, a new Web site that lets plan participants and sponsors see how their 401(k) measures up against the competition.
BrightScope rates 401(k) plans with a single number between 1 and 100. To arrive at that rating, it gathers more than 200 pieces of information on factors including a plan's administrative and investment costs, average salary deferral and the company match, and vesting schedule, and then runs thousands of simulations to arrive at an estimate of how long it would take the average participant to save enough for retirement, compared with the plans provided by a group of the company's peers.
BrightScope started by rating 1,000 companies based on publicly available data, such as the Form 5500 that employee benefit plans must file with the government. But CEO Mike Alfred says the company has now heard from "several hundred" companies, mostly large ones, eager to provide information about their plans in order to improve their rating. Once companies become aware of the Web site, Alfred says, "their first inclination is to make sure the data being used to score the plan is as current and as accurate as possible."
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At this point, BrightScope has ratings on 1,200 companies, but Alfred hopes to expand that to 70,000 by the end of the year. And this month, BrightScope plans to roll out the money-making part of the site: a plan management dashboard that lets companies see the data that BrightScope uses to calculate its rating. The initial pricing to use the dashboard for a year will be $2,400.
Alfred is optimistic that over time, additional transparency will lead to improved 401(k)s. "All of the history that we have on financial markets is that the best way to make a market more efficient is to have more transparency in the underlying data," he says. "You essentially have a marketplace right now where no one has comprehensive information about what's going on in these plans."
And he suggests that now is the time for plan sponsors to get on top of their plan's fee structure. "This marketplace is changing very quickly and waiting for the government or the [Department of Labor] to give guidance I think is a fool's game," he says. "By the time it's mandated, it's going to be too late to fix it."
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Susan Kelly
Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.
