A new service makes it easy to see how your 401(k) plan stacks up against others.
, a financial information company, uses technology to bring transparency to the opaque 401(k) market. Using its tools, a participant can get an idea of how her plan stacks up against others and what implications it has for her own retirement.
For example, the Indiana State Teacher’s Association gets a rating of 79 on the Bright Scope website, whereas the average 401(k) participant’s plan ranks six points higher (see figure below). For a teacher in Indiana, this is up to $64,600 in lost savings and is discouraging. On the other hand, the plan is in the top 15% in its peer group meaning that though it could be better 85% of similar plans rank below it.
From the Bright Scope website
Bright Scope information is open to anyone who registers with an email address and password. Here is the step-by-step process. Go to the Bright Scope website. Select “Research a 401(k) Plan” from the dropdown men. Put in your company name. If its information doesn’t come up immediately, try several variations of the name. If this doesn’t work, as a final try, use the alphabetical option to scroll down through all companies. By comparing the rating of the participant plan with others, the member knows where she stands. Additionally, if she is dissatisfied, the information can be used to try to make plan improvements. Though most large plans are included on the website, smaller ones may not be, which could explain why a particular plan is omitted.
Bright Scope is not without its critics. In 2010, Steve Utkus, who oversees the Vanguard Center for Retirement Research, wrote, “Any system designed to rate a complicated product, like a 401(k) plan, is bound to have some holes, especially when it relies on incomplete public data.” He follows up with, “Certainly, I encourage anyone with questions about a particular 401(k) plan to fiddle around with Bright Scope’s service and see what they come up with. In my own small tests, I found a hospital company and online brokerage in the same peer group; in another peer group, a carpenters’ union and a boutique money manager.”
Clearly, the companies cited by Utkus have little to nothing in common and one wonders about the validity of including disparate companies in the same category. Nevertheless, what Bright Scope is doing is laudatory. The company is focusing a spotlight on an industry that was totally murky. Now, participants can begin to appreciate what they have in their 401(k) and how it compares to other plans.
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