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A BrightScope Success Story

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For those of you who are not familiar, BrightScope is a start-up company that has introduced an online-database and ranking tool for 401(k) plans. They use information culled from 5500 reports and the DOL to gather data and rank plans along six key factors:

  • Total Plan Cost
  • Company Generosity
  • Investment Menu Quality
  • Participation Rate
  • Salary Deferrals
  • Account Balance

While some criticize BrightScope’s methodology and the quality of their data, one thing is for sure. BrightScope has contributed to the needed conversation about 401(k) costs and the overall quality of plans companies offer to their employees.

I recently received an email from a client for whom I had done a financial plan for his personal situation in early 2009. At the time I had mentioned to him that I could also be of help with his small company’s 401(k) plan. His recent email cited the fact that he had looked at his plan’s BrightScope ranking and was disturbed by the fact his company’s plan had the lowest rankings for both plan cost and investment menu quality. His plan is with a well-known insurance company so I was not surprised by his note.

Where will this go, to be determined. Is this a success story and an example of what BrightScope can facilitate? Yes.

The next step is for the client and I to sit down and review the details of his plan. If there are indeed cost and investment quality issues I will see if I can propose a better solution.

To me the power of BrightScope is getting the conversation started. I would encourage anyone charged with making decisions on their company’s 401(k) plan to check their plan on BrightScope. If your plan isn’t ranked or if you feel the ranking is based on inaccurate data (currently the data is accurate through the 2008 5500s) I would encourage you to contact the company and provide them with data that is more up to date.

Plan participants, you can also use BrightScope to see how your company’s plan stacks up. There is a link on the site for participants to register.

Plan sponsors if you need help in doing an in-depth review of your your company’s plan (investments, cost, investment process, etc.) or if you feel that it is time to engage an independent third-party advisor, please feel free to contact me.

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Comments

  1. It is good to understand the cost with 401k or other retirement plans. But what can you do about it?

    I would suggest you about a web service called http://www.analytic401k.com where you can really help people with their money. That's the real issue – optimize portfolio for performance. Asset allocation is the only way to make people's portfolio grow.

  2. Thank you for your comment. Actually plan sponsors can do alot about their plan's fees and expenses including switching providers if things come to that.

    At the participant level optimizing performance certainly is a good thing to do. If you combine direct participant advice with an outstanding plan investment lineup you generally have a winning combination.

  3. Great post Roger. Brightscope is amazing and long overdue. Given that I take a very personal interest in my local community, I’ve gone one step further and notified local plan sponsors about the service. Invariably this starts the dialog, both from the sponsor side and the participant side.

    One obvious by-product of the analysis and ranking is that consumers may think twice about leaving their plan with the sponsor as opposed to proactively looking for either a conduit or direct rollover. If they know upfront that their plan has a high ranking among its peers, then it might make the decision to keep with the plan that much easier.

    • Roger Wohlner says:

      Andrew thanks for your comment. Mike, Ryan, and the whole BrightScope team have done a great job of bringing added transparency to both the 401(k) world and to consumers looking for financial advisors. As far as the rollover decision you may be right, but as with any decision of that type it should be done on a case by case basis with consideration given to a multitude of factors.

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