Bucks Blog: The Best 401(k) Plans

Retirement would be a lot easier if all companies were as generous as Southwest Airlines is to its pilots.

The airline recently took the top spot on a list of the 30 highest-rated 401(k) plans, a report created by BrightScope, a company that analyzes the plans. Southwest, known more for its quirky corporate culture than its generous 401(k) plan, matches 100 percent of the money its pilots set aside, up to 9.3 percent of their income.

Over all, BrightScope found that companies — at least the giant ones that made the list — were significantly more generous with their employees than last year. The average company provided an average of $11,000 per plan participant in 2011, up from $8,000 last year.

BrightScope analyzed more than 200 data points across about 350 plans with more than $1 billion in assets, factoring in categories like the total plan cost, company generosity and the quality of the investment menu.

Once it feeds all of that information into its algorithm, it comes up with a score for each plan. But the overriding factor that drives results is how quickly the plan will help employees reach retirement: the faster they can get there, the higher the BrightScope rating.  (Retirement, in this case, is achieved when employees can stop working with an income that is equivalent to 75 percent of their earnings during their working years — and is estimated to last for their remaining life expectancy).

The overall rating this year increased .75 percentage points from 2010, largely because more companies are putting more money into the plans and total plan costs have decreased. “Let’s face it, the companies on this list are incredibly profitable,” said Mike Alfred, chief executive of BrightScope. “The average middle-class worker is not benefiting from that, but the corporations are sitting on a ton of cash and they are being a bit more generous.”

But there’s something else prodding companies to improve their plans. Starting next year, the Labor Department, which oversees 401(k) plans, will make investment companies itemize all of the expenses that employers and employees are paying and make the underlying mutual fund costs distinct from administrative expenses. “Fees have been falling for some time, but going into next year that process has accelerated as more plan sponsors expect more pushback from their participants,” Mr. Alfred added.

This year, the average total plan cost for companies in the top 30 has dropped by 0.05 percentage points to 0.61 percent from the year before. That compares with an average total plan cost for all BrightScope-rated plans of 1.55 percent and 0.87 percent for all plans with assets over $100 million.

And some companies, believe it or not, are afraid of ranking too high on this list —if they appear too generous, their chief financial officers might want to make some cuts, Mr. Alfred added. “There is a fundamental conflict between the focus on corporate profitability and managing the company for shareholders, and managing the company for the benefit of your employees,” he said, adding that he recalled having a conversation with the Saudi Arabian oil company about their concerns of ranking too high.

The top 15 plans are listed below, along with some information on the generosity of the company match, among other factors. The top 30 can be found here.

The BrightScope 401(k) Rankings

Article source: http://feeds.nytimes.com/click.phdo?i=0d343a017bd08ac2f6e58264411beccd