401k plan

Today BrightScope is pleased to announce the Top 30 401k Plans of 2009.  BrightScope’s Top 30 list comprises large 401k plans with high overall quality, as measured by the BrightScope Rating. The BrightScope Rating measures how effective a 401k plan is at getting its participants to retirement. More details about the BrightScope Rating can be obtained in theFAQ section of the BrightScope website.

1. Generous Company Contributions: Company contributions consist of matching, profit sharing, stock bonus and all other company contributions in a given plan year. If participants leave the plan before fully vesting company contributions, the company contributions they forfeit are netted out of the total company contributions. We believe
this yields a better analysis of company contributions. To be at the top of the list companies must have a high level of company contributions per participant, which is indicative of generous matching and profit-sharing contributions and quick vesting.  The top plan on the Top 30 list, the Saudi Arabian Oil Company, matches 100% up to 9% of employee contributions. The second rated plan on the Top 30 list, the United Airlines Pilot Directed Account Plan, puts in 9% on a non-discretionary basis plus an additional 6%. Other companies on the list exhibit similarly generous plan design and as a result show high company contributions net of forfeitures per participant.  The plans with the highest company contributions are United Airlines($37,069 per participant), Wellington Management ($18,679 per participant) and Nucor Corporation($15,598 per participant).

2. Immediate Plan Eligibility:  Plan eligibility is the length of time between when an employee is hired and when they are eligible to participate in the plan. The shorter the time period the better. Twenty-three (23) of the thirty (30) plans on the list offer immediate eligibility to the plan. The longest eligibility period was 6 months, for Nucor and Fedex.

3. Immediate Match Eligibility: Two of the plans on the list make employees wait an additional period of time to be eligible for employer matching contributions, PACCAR (11 months) and Fedex(6 months). For the rest of the plans employees are immediately eligible for matching contributions when they become eligible for the plan.

4. Immediate Vesting:  Fourteen (14) of the top fifteen (15)  plans and twenty-five (25) of the thirty (30) plans on the list offer immediate vesting. The longest vesting schedule of a plan that made the list was UBS, which had a 5 year cliff vesting schedule for employer contributions.

5. Low Fees: 401k plans are not free, but a good plan will make sure that investment and administrative fees are reasonable. Fortunately, plans on the Top 30 List have some of the lowest total fees in the 401k marketplace. BrightScope’s Total Plan Cost (TPC) calculations include investment expense ratios, administrative costs and also fund-level trading and transaction costs. To read more about how we calculate these costs and why we include them, please read this blog post. Two of the plans have all-in fees (including fund-level trading costs) under 0.30%  – IBM andExxonMobil — and fifteen (15) plans on the list are under 0.50%.  The average total cost of plans on the list is 0.57%.  There are only 3 plans on the list with total fees above 1%.

6. High Participation Rates: As we say at BrightScope, as good as the plan design might be, if people aren’t participating in the plan they aren’t going to reach retirement. The average participation rate among plans on the Top 30 List is 94%, with ExxonMobil obtaining 100% participation. If we are going to solve the retirement security crisis, the first step is higher participation; if your plan has low participation it is time to think about automatic enrollment.

7. High Salary Deferrals: High participation is great, but salary deferrals ultimately drive participant outcomes.  The more people save in their 401k plan, the more they receive in company match, and the more their 401k savings compound over time. It is no secret that plan funding is the number one determinant of retirement success. It should come as no surprise then that over half of the plans on the list have salary deferrals above $10,000 per participant, with an average salary deferral of $10,900 for plans on the list. At the top of the list for salary deferrals is Saudi Arabian Oil Company($48,240 per participant), FedEx ($15,377 per participant) and Southwest Airlines ($14,283 per participant).