Have you ever wished there was a rating system for 401(k) plans?

I’ve had a reason to in the past. I was looking at two job offers recently and one of the things that set the two apart was the benefit package. Obviously, a big part of any benefit package is the retirement plan offered by the employer. I could see that both plans offered the same employer match level on contributions, but I had no idea what types of investments were offered by the plans, or what the fees were like. That’s where BrightScope comes in.

BrightScope is an independent 401(k) rating and analytics firm that quantitatively rates 401k plans from all 50 states in the U.S. and gives plan sponsors, advisors, and participants tools to make their plans better.

They rely on public documents and grade 401k plans based on administrative costs, company generosity, investment options, participation rate, salary deferrals and account balances.

It provides a very nice visual indication of how your company 401k rates, on a scale of 1 (horrible) to 100 (excellent).

BrightScope does not accept compensation in the form of revenue sharing from mutual fund companies or plan providers, so they don’t have a horse in the race and they are more likely to provide independent results.

They hope to have over 30,000 plans rated by the end of this year, but if your plan is not yet rated, your plan administrator can get your retirement plan rated for free – no matter how small your company is.

So far so good.

But there are some things I’m not so crazy about.

For example, the ratings consider things like employee participation rate. I’m not sure why this is important, after all it’s not a determinant of how your 401k will perform. I suppose the thinking is that more people participate in better plans than poorer plans. That may be true, but it may also be that the people participating don’t have much choice, or the financial knowledge to open an IRA on their own.

Still, that’s a relatively minor problem with the idea. The site is very well done and it’s free, so why not take a look and see how your company 401(k) plan rates!

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