I get under the hood of quite a few 401(k) plans as a financial advisor and I rarely love what I see. Of all of the areas of financial services in desperate need of disruption, the retirement plan business is probably the most pressing; it’s a mess and a costly one at that.
When I joined the advisory board of Brightscope last year, founders Mike and Ryan Alfred took me through all of the smoke, mirrors, hurdles and red tape facing average Americans who wanted to learn more about the plan their employer was providing. Millions of plans had been sold to businesses around the nation by brokerage firms and insurance companies but nobody had any clear way to compare one against the other or to truly understand what the internal costs were for everyone involved. And this was by design – the worse the plan was for a company’s employees, the more obfuscated the details.
The Alfred brothers and I are philosophically aligned in that we both very much ascribe to the famous quote from U.S. Supreme Court Justice Louis Brandeis, “Sunlight is the greatest disinfectant.” We both believe in transparency and business models that don’t rely on an information arbitrage game in which profits are based on an institution’s taking advantage of its customers.
By shining the light on America’s 401(k) plans using publicly-available information and a database full of comparisons, Brightscope is making more information available to employers and their workers than ever before. And as companies compare what they’ve been sold to the other options that are out there, everyone’s plans will improve and America’s retirees will be the primary beneficiary.
I’m proud to be associated with this revolution, and I want to share two real-life examples of it from the past week:
First, MarketWatch covered Brightscope’s just-released 4th annual Best 401(k) Plans list this weekend:
Brightscope’s rankings focus on about 400 companies whose plans have at least $1 billion in assets. Companies get rated on a couple of hundred criteria, but the ones that count most include how much money the company puts into employees’ accounts, through matches and other contributions; plan costs and fees (the lower, the better); the range of investment choices; and employee participation rates. These factors tend to give an edge to companies where employees’ average pay is particularly high – over the years, oil companies and big pharmaceutical powerhouses have generally fared well in the year-end rankings.
For those whose employers don’t fall into those categories, Brightscope also ranks companies’ plans within their industries. Seeing where your own plan ranks, of course, might inspire you to press your employer for some reforms.
Also, RIABiz just named Mike and Ryan Alfred to their 10 most influential list for the 401(k) business. Here’s what they said about the Brightscope offering:
Earlier this month, the firm unveiled its top-10 401(k) plans list for 2012. The top-ranked plan was the Marathon Oil Co. Thrift Plan with a rating of 92. The company matches 100% of employee contributions up to 7%. The average employee contribution annually to the plan is more than $38,000 for each participant, according to BrightScope’s data.
BrightScope notes that 4.9% of its top-10 list’s assets were in target date funds, up from 3.6% in 2010. See: Blog battle: Vanguard 401(k) principal and president of 401(k)-tracker have it out over the Internet.
Mike Alfred says he’s proud of the strides his firm has made in its quantity and timeliness of its data in the last year. He points out that now the firm offers up to six years of trended data on 401(k) plans.
“Knowing how a plan has changed over time is in some ways even more powerful than knowing exactly how the plan looks today,” he says.
Here’s the bottom line – Whether you’re a financial advisor helping a client set up a plan for his employees, you’re a business owner looking to evaluate your company’s offering, or you’re an employee looking to better understand the 401(k) at your job, you now have the relevant data at your fingertips. This is extremely empowering for individuals and it just might make a huge difference for millions of retirement savers as better, safer, cheaper and more efficient plans are not requested but demanded.