The financial research firm BrightScope on Tuesday released its annual list of the 30 top 401(k) plans and found that target-date funds are making inroads in highly rated plans.
The average plan on this year's list had 4.9 percent of its assets in target-date funds, up from 3.6 percent in 2010. (This year's list reflects plan data as of the end of 2011.) There has been a large flow of money into target-date funds because they are often the default enrollment option for employees, said Dan Weeks, BrightScope's co-founder. The funds automatically reallocate investments, reducing exposure to stocks as retirement nears.
Index funds, meanwhile, represent 29.5 percent of assets in the top 30 plans, up from 25.4 percent in 2010.
Brokerage windows — a self-directed option, in which employees can choose their own mutual fund investments — are also becoming somewhat more popular: they represent 3.8 percent of 401(k) assets in this year's list, up from 2.8 percent in 2010.
The list represents the top 30 of more than 400 retirement plans with $1 billion in assets, as rated by BrightScope. (Some companies offer more than one plan.) BrightScope bases its ratings on about 200 different factors, and boils down the information to a single rating number.
Criteria include the amount of money flowing into the plan from the employer, the participation rate of employees, the total cost of the plan and the investment choices it offers. In a nutshell, the sooner a plan allows employees to retire, the more highly it ranks. The company uses information gleaned from public filings with the Department of Labor and the Securities and Exchange Commission, combined with information from the plans themselves.
Some in the investment world have been critical of BrightScope's methods. The top-ranked plans tend to be those offered by companies in high-paying industries that can offer bigger matches of their employees' contributions. Plans in lower-paying industries are unlikely to make the top 30 list because they aren't as generous with retirement benefits. But BrightScope also ranks plans based on their peer companies, so plan participants can see how their plan compares with those at similar companies.
This year, the top-ranked plan was the Marathon Oil Company Thrift Plan, with a rating of 92. (Marathon Oil in 2011 spun off a subsidiary company and part of the thrift plan was spun off as well. The original plan is the higher-rated plan, according to BrightScope; the spin-off plan rates a 72.)
The top-rated Marathon Oil Company Thrift Plan matches 100 percent of employee contributions, up to 7 percent of their compensation, for an average company contribution of more than $23,000 per participant. That generosity, in turn, helped push the average employee contribution to the plan to over $38,000 per participant, BrightScope reports.
Plans on the 2012 Top 30 list an average of more than $12,700 in participant contributions, up from $11,600 in 2011. Meanwhile, Mr. Weeks said, companies put in an average of $12,000 an employee in 2012. "It really shows both the employer and the employee are doing their part," he said. "It's a partnership."
Mr. Weeks said plan fees overall continue to drop, in large part because of new disclosure requirements. Among plans in the top 30, the average total plan cost has dropped by 1.5 basis points, to 0.29 percent, BrightScope said.
In addition to oil-related companies, plans for airline pilots and pharmaceutical company employees, in general, also scored well on the list.
Have you checked your 401(k) plan on Brightscope?