How does your 401k plan stack up?
USA Today had a good summary yesterday of attempts to rein in 401k fees, a subject I’ve followed for a long time. New to me, though, was mention of BrightScope, a website that rates employers’ 401k plans. It gives each plan a numeric score based on costs, quality of the investment choices, employees’ participation and other factors. The scale goes from 1 to 100, although no plan has earned a rating of more than 89.
Some big employers in the St. Louis area have highly rated plans: Boeing gets an 81 and Anheuser-Busch a 78. Others are average or below: Panera Bread comes in at 34, Express Scripts at 48 and Lee Enterprises, parent of the Post-Dispatch, at 46.
Exact data aren’t posted on the site, but BrightScope says it mines the numbers from public documents. If your plan isn’t rated, you’re encouraged to upload copies of the plan documents you get from your employer.
Let me know if you are surprised by anything BrightScope says about your employer’s plan. Ultimately, these ratings could give employees a little leverage to push for plan improvements.
(2 votes, average: 3 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I was quoted in the USA Today article, but they failed to mention with whom John Sullivan is associated. So much for a shot in the arm for my business! BrightScope is taking on a monumentally large task in trying to rate 401(k) Plans nationally. While they are doing a very good job and getting considerable attention, they will be perfecting their rating system for a while because some plan documents are imperfect.
During my interview with Christine Dugas - reporter for USA Today, I explained why 401(k) Plans are in such a mess. By mess, I mean there will be very few Americans who will have substantial balances in there 401(k) when they reach retirement. Briefly,
1. Excessive, unnecessary, and very high and poorly disclose fees give CEOs, CFO, Comptrollers, HR Dept. and others responsible for sponsoring the plan the feeling the plan has no or very low costs. Nothing could be further from the truth especially for plans with less than $100 Million.
2. The mutual fund choices in many (maybe most) plans are often selected not because of performance and low cost, but because of kick-backs to the plan’s provider. A clear conflict of interest.
3. Very few if any low-cost Index mutual funds even though studies show they outperform nearly all other mutual funds, after fees.
4. Insurance companies foolishly put 401(k) plans that are already tax-deferred accounts into “annuities” which provides a way tack on several extra unnecessary, overpriced annual fees.
5. Plan providers do not provide even the most basic help to 401(k) plan participants.
What the uninformed executives and employees wind up with is an overpriced, inferior plan with no advice. Then every few years, the plan gets knocked on its heels by the market, with participants stuck in the middle of a crash.
The bottom line: What the plan provider doesn’t take from participants the market eventually will.
Is there a solution? Yes, it can all be fixed using a Registered Investment Advisor who has a fiduciary responsiblity to the plan, who has specific 401(k) knowledge. You will end up with a superior plan at about half or less the cost.
All the best,
John L. Sullivan
Sullivan Capital Management
401ktuneup@gmail.com