How Good is Your Employer's 401(k)?
BrightScope recently identified the industries with the best 401(k) plans. Which industries came out on top?
Our rating system is based on how quickly the average participant in a given 401(k) plan is going to accumulate the money we believe someone needs to retire comfortably within his or her industry. Law firms, utilities, mining companies and airlines were top scorers because they typically offer plans with low fees and some form of profit-sharing. Employees in these industries are highly educated and well paid. They tend to contribute at a higher rate than do employees in lower-ranked plans, and they let those dollars grow over time.
How can I tell if my company's 401(k) plan isn't up to snuff?
High plan fees are a red flag. But remember that fees vary depending on plan size, industry and other factors. And fees pay for services; a 24-hour help line through which employees can get great advice may be worth the money. Also, the investment menu should meet your needs. If you're nearing retirement, for example, make sure there are investment options that will get you there securely -- for instance, a low-volatility fixed-income investment such as a stable-value fund.
Haven't people sued their employers for offering funds in expensive share classes?
The onus is on the company to provide the best plan possible. But if you work for a small company, expensive share classes may be all that your plan provider can afford. The smaller the value of the assets, the more you pay in fees.
What recourse do you have if you're not happy with your plan?
Search for your company plan on BrightScope.com and compare the plan's price and performance with those of similarly sized companies in the same industry. If your plan doesn't measure up, present your concerns to the plan sponsor, usually someone in the human resources department. He or she has the legal duty to manage the plan responsibly, but might not even know that the plan is problematic.
What if everything is above-board, but your plan still stinks?
Do the math and determine whether it's worth it to be part of the plan. Investing enough to get an employee match, for instance, probably is. If investing beyond that amount isn't worth it, consider an IRA. You can't contribute as much as you can to a 401(k), but you still get the power of tax-deferred compound growth. That's a big win.