A report card for your 401(k) plan
Want to know how your company's retirement plan compares with others? It's not easy to find out. But here are a few things you can try.
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| Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005). |
NEW YORK (Money) -- Question: Is there a listing that would allow me to see how my 401(k) plan compares with other companies' 401(k)s? --Debbie W., Mount Laurel, New Jersey
Answer: Considering that upwards of $3 trillion is invested in 401(k) accounts for some 50 million American workers (plus millions of retirees), you might figure that there would be all sorts of resources allowing participants to see how their plan stacks up against others.
But you would be wrong.
Although there's a ton of data available about 401(k) plans in aggregate, there's not a whole lot out there that allows you to directly compare or rate specific plans.
Even getting information about something as simple yet important as what you pay in fees for your 401(k) plan can seem as if you're trying to unearth state secrets. Legislation has recently been introduced in Congress to improve disclosure, but it's an open question at this point whether anything will come of it. Similar efforts have died before.
That said, there are a few ways you may be able to evaluate your 401(k) in terms of the cost, breadth of offerings, the company match and other policies, and perhaps even get a sense of how it rates versus other plans.
The first place you should try is the Web site of a new independent rating service called BrightScope. The company uses data culled mostly from public filings to assign numerical scores to company 401(k) plans on a scale of 0 (lowest) to 100 (highest) based on such factors as the generosity of the employer match, the quality of the investment options, the vesting schedule and the level of fees.
The service also tells you how that score compares to the lowest, highest and average rating for your plan's peer group, so you can see how your plan rates versus companies of a comparable size in the same or similar industry.
So, for example, on the strength of factors such as its liberal matching policy and vesting schedule, superior investment lineup and lofty participation rate, the retirement and savings plan of Amgen, the big biotech firm, received a BrightScope rating of 83. That's the top score for its peer group, well above the average of 70 and more than twice the lowest rating of just below 40.
At this point, BrightScope rates upwards of 1,000 firms, but that number is growing quickly. To see if your company is rated, you can plug its name into BrightScope's search engine or you can scan the alphabetical listing of companies in the Ratings Directory.
If your plan isn't rated - or if you want to go beyond BrightScope's take - you'll have to take a more indirect (and laborious) route to get a sense of how your plan stacks up.
A number of organizations, such as the Investment Company Institute and the Employee Benefit Research Institute, as well as pension consultants like Hewitt Associates compile lots of information about 401(k)s through surveys and various studies.
Such research can often give you a sense of what 401(k)s generally look like in terms of the number and type of investment options offered, the employer matching funds rate, vesting schedule and policies on company stock. Knowing that, you can at least get an idea of how your 401(k) measures up in certain key areas versus the averages.
I should add, though, that since these surveys and studies are aimed at people in the retirement planning biz, as opposed to consumers, you'll find a lot of it pretty dry and much of it off the point. And in some cases, only highlights may be available, as opposed to the entire survey itself, although a site like 401khelpcenter.com will occasionally pull together bits and pieces of this data from a variety of sources and post it for consumers, as it did with this 2008 Benchmarking Your 401(k) piece.
Of course, even if you find that your 401(k) plan isn't exactly top of the line, that doesn't mean you should abandon it. After all, you get some pretty nifty tax benefits from contributing. And even if the investment options are very expensive and mediocre-to-poor performers, at the very least you should contribute enough to reap the full employer match.
Besides, even a lousy 401(k) plan may have one or two decent choices. By taking a holistic approach and combining those options with superior investments in IRAs and other retirement accounts, chances are you can still create a well-balanced and effective retirement portfolio.
For now, though, the unfortunate truth is that it's no easy task for most people to see how their 401(k) compares to other plans. I hope the situation will improve in the near future. If Congress can get it together to pass a bill that would give retirement investors enough information to make better choices without making the disclosure requirements so costly that returns suffer, that should be a big step in the right direction.
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