Top-level 401(k) plans seen raising the bar

New York TimesMarch 15, 2014 

20090424 401k basket

Every December for five years, BrightScope, a financial research firm based in San Diego, has published a list of the top 30 401(k) plans.

CAMPANARIO — Gabi Campanario/MCT

Every December for five years, BrightScope, a financial research firm based in San Diego, has published a list of the top 30 401(k) plans. These standouts provide, among other qualities, generous company contributions, quick access to that corporate money, low fees and a wide array of investment options.

Seeing this, employees at other companies might be tempted to ask their own personnel departments, “Why can’t we have a plan this good?”

The short answer is that BrightScope’s winners are usually profitable organizations that can afford rich benefits. Among them are major oil and drug companies, professional sports leagues and elite law, money management and medical firms.

“You can’t compare the plan of the neighborhood baker to IBM,” said Brooks Herman, BrightScope’s head of data and research.

Maybe not, but Karen Friedman, executive vice president of the Pension Rights Center, a Washington-based advocacy group for workers and retirees, said this should not stop employees from trying. “There’s no reason not to have models like BrightScope out there that employers can adopt,” she said.

BrightScope collects data on more than 46,000 plans largely from the plans themselves, the Labor Department and the Securities and Exchange Commission. After winnowing the list to those with more than $1 billion in assets – 483 plans last year, covering more than 15 million eligible employees – the firm then analyzes about 200 data points, like the amount of salary that employees contribute, the company’s matching contribution, any other financial contributions from the company, fees, the participation rate, eligibility and vesting rules, and the types of investment options.

Benefits improving

Perennial winners include Chevron, Exxon Mobil, IBM, the drug companies Amgen and GlaxoSmithKline, the Southern California Permanente Medical Group and the investment management firms Credit Suisse and Wellington Management. For 2013, the National Football League’s NFL Player Second Career Savings Plan took first place.

Even at companies not on that list, “We are seeing defined-contribution plans in general definitely improving in terms of their benefits,” said Rob Austin, director of retirement research at the management and benefits consulting firm Aon Hewitt.

For years, he pointed out, the standard formula was that companies matched half of the employee’s contribution on the first 6 percent of salary. But last year, 31 percent of the 400 employers surveyed by Aon Hewitt matched every dollar put in by the work force, up from 19 percent of companies in 2001.

That statistic cannot be directly compared with BrightScope’s rankings, because BrightScope does not collect data on the match percentage. The firm’s “company generosity” category includes the dollar size but not the percentage of the match, as well as other corporate contributions such as profit-sharing and company stock. For 2013, that total “generosity” averaged $11,605 per participant. By contrast, the average for just the company match in a different Aon Hewitt study from 2013, which covered 141 large companies, was $2,717.

Moreover, employers are giving participants access to that match sooner. In 2012, 57.4 percent of Fortune 100 companies vested employees immediately, meaning that on departure one could take the matched retirement money without meeting the traditional requirement of three to five years of employment, according to a study by the New York-based consulting firm Towers Watson. Only 51.1 percent of the companies did so in 2006. Among the BrightScope group, the rate is even higher: 70 percent.

Fees dropping

Another improvement is that fees have been dropping. The average per-person fee was 0.83 percent of assets in 2011, down from 0.92 percent in 2009, at 525 plans surveyed by the Investment Company Institute, a trade group for mutual funds. At top BrightScope companies, the comparable figures were 0.535 percent in 2011 and 0.56 percent in 2009.

AOL in February seemed to signal a shift in the opposite direction, toward worse benefits, when it announced that it would pay its match in one lump sum at year-end, and just to employees who were still on the payroll, rather than at regular intervals during the year. That would wipe out thousands of matched dollars from the nest eggs of employees who leave midyear.

But only about 8 percent of companies have taken similar steps, a rate that has held steady for several years, Austin of Aon Hewitt said. AOL itself reversed its decision after a storm of criticism. AOL’s chief executive, Tim Armstrong, had tied the 401(k) cost-cutting to the Affordable Care Act and the medical expenses of two employees’ infants.

Even with upgrades, benefits no doubt could be better. “There’s no reason why you can’t offer a suggestion to management and say you’re aware that there are various services being offered” by rival companies, said Robert McAree, a senior vice president at Sibson Consulting in New York.

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