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Exclusive Interview: Mike Alfred Provides Insight into BrightScope’s 2nd Annual List of the Top 30 401k Plans

December 14
09:35 2010

On December 14, 2010, BrightScope, a popular provider of independent retirement plan ratings and investment research, announced its second annual BrightScope Year‐End Top 30 Ratings List covering 401k plans with more than $1 billion in assets. BrightScope obtains an increasing amount of its data directly from plan sponsors and recordkeepers, and augments these primary sources with data from publicly available sources such as the Department of Labor and the Securities and Exchange Commission. Mike Alfred, CEO and co‐founder of BrightScope, was kind enough to sit down and talk with Fiduciary News about the list (which appears at the end of the interview).

Mike Alfred

FN: Mike, once again, thanks for providing us with this interesting ranking. Why did you choose to limit BrightScope’s Year-End Top 30 Ratings List to only companies with 401k plans in excess of $1 billion?
Alfred: We wanted to make sure the companies on the list were recognizable to the general public.

FN: It appears most if not all of these plans are associated with publicly traded companies. Is there a reason for that or is it just a coincidence?
Alfred: There is a strong correlation between the size of a plan, the market capitalization of a company, and the likelihood of being public.
FN: Is it easier to get the information you need to rate a plan if the sponsoring company is publicly traded?
Alfred: Not really.

FN: Are the 401k plan issues faced by private companies different from the issues faced by larger companies?
Alfred: Large public companies are probably more likely to be sued. But otherwise, the issues should be similar.

FN: Do you plan on coming out with separate Top 30 ratings for private companies?
Alfred: No.

FN: Do smaller 401k plans have structural disadvantages compared to these billion dollar + plans? If so, can you identify some of them?
Alfred: Yes. It is generally harder to structure a plan with ultra low fees when you don’t have the economies of scale provided by a large asset base. But we’ve seen many plans under $5M that compete favorably with plans over $1B on fees. Other than fees, the structural disadvantages relate more to the size of the company (profitability, salary levels, etc.) than to the size of the plan.

FN: Since economies of scale naturally reduce expenses for all mutual fund shareholders, can you think of any reason the price breaks some mutual funds can offer larger 401k plans should not be extended to all 401k plans (or all other shareholders, for that matter)?
Alfred: I think this is basically the idea behind multiple employer plans. There probably isn’t a great reason why this shouldn’t happen.

FN: Are smaller 401k plans different enough from the large plans in your Top 30 list that BrightScope might consider using a different rating algorithm to measure them?
Alfred: I don’t think so. The bottom line is that employees that invest within a small company 401k plan are generally going to be at a disadvantage relative to their big company counterparts. If we rated plans differently based on size, we would be obscuring this fundamental truth.

FN: Do you think it might be helpful to offer a Top 30 list for both mid-sized and small plans (much the same way the S&P places companies into large, mid-cap and small categories)?
Alfred: Potentially. We listen to the market and no one has ever asked us to do this before.

FN: In your Top 30 list, the bottom 20 companies are separated by only 2 points. What differences will the typical employee see between plans separated by only 2 points?
Alfred: The actual differences between what the employees experience in two different plans with similar BrightScope ratings could be quite dramatic. For example, two companies might both have an 85 rating, but in one plan all of the investment options could be all active and in the other they could be all passive. The ratings could be very similar simply because in both companies the salary deferrals are very high even though the fee structures could be different by more than 50 basis points. We focus on rating outcomes, not features, and there are many ways to get to retirement.

FN: Lastly, how would you suggest 401k fiduciaries use the Top 30 list?
Alfred: I think fiduciaries can learn a lot from these top plans. In pretty much all cases, these plans have very high participation, salary deferrals, and company contributions. There are some obvious things like automatic enrollment that can make a huge difference to your BrightScope Rating over time. But to get some insight in to some of the less obvious factors driving these great results, you may have to go speak with the companies directly. I’ve found that many of them are willing to share their strategies and approaches because they are proud of their plans.

FN: Thanks, Mike. As always, you’ve given our readers something to chew on.

Here’s the list of the 2010 BrightScope Top 30 401k Plans:

2010 Rank

2009 Rank

Plan Name

U.S. Headquarters

BrightScope Rating™

1

1

The Savings Plan of Saudi Arabian Oil Company

Houston, TX

93.17

2

N/A

Southern California Permanente Medical Group Retirement Plan

San Diego, CA

89.96

3

4

Southwest Airlines Pilots’ Retirement Savings Plan

Dallas, TX

89.04

4

10

Amgen Retirement and Savings Plan

Thousand Oaks, CA

88.40

5

2

United Airlines Pilots’ Directed Account Plan

Chicago, IL

88.30

6

9

Employees Savings and Retirement Plan of Credit Suisse

New York, NY

87.35

7

20

Bayer Corporation Savings and Retirement Plan

Pittsburg, PA

87.26

8

12

BP Employee Savings Plan

Houston, TX

86.99

9

N/A

Nucor Corporation Profit Sharing and Retirement Savings Plan

Charlotte, NC

86.97

10

25

Avaya, Inc. Savings Plan for Salaried Employees

Basking Ridge, NJ

86.88

11

21

UBS Savings and Investment Plan

New York, NY

86.73

12

28

IBM 401k Plus Plan*

Armonk, NY

86.66

13

8

ExxonMobil Savings Plan

Irving, TX

86.45

14

N/A

sanofi-aventis US Savings Plan

Bridgewater, NJ

86.42

15

N/A

Anadarko Employee Savings Plan

The Woodlands, TX

86.35

16

N/A

Novartis Pharmaceuticals Corporation Investment Savings Plan

East Hanover, NJ

86.26

17

N/A

Bechtel Trust & Thrift Plan

San Francisco, CA

86.17

18

7

Chevron Employee Savings Investment Plan

San Ramon, CA

85.95

19

N/A

Genentech, Inc. Tax Reduction Investment Plan

South San Francisco, CA

85.59

20

N/A

Altria Deferred Profit-Sharing Plan for Salaried Employees

Richmond, VA

85.35

21

6

ConocoPhillips Savings Plan

Houston, TX

85.22

22

N/A

American Airlines, Inc. Pilot Retirement Benefit Program Variable Income Plan

Fort Worth, TX

85.11

23

27

Federal Express Corporation Pilots’ Retirement Savings Plan

Memphis, TN

85.10

24

N/A

Shell Provident Fund

Houston, TX

84.80

25

N/A

Sun Microsystems, Inc.  Tax Deferred Retirement Savings Plan

Santa Clara, CA

84.72

26

23

GlaxoSmithKline Retirement Savings Plan

Philadelphia, PA

84.68

27

N/A

Cisco Systems, Inc. 401k Plan

San Jose, CA

84.66

28

N/A

Goldman Sachs 401k Plan

New York, NY

84.56

29

N/A

AstraZeneca Savings and Security Plan

Wilmington, DE

84.53

30

13

Pfizer Savings Plan

New York, NY

84.52

* denotes a change in plan name since 2009

BrightScope has rated more than 55,000 401k plans, spanning more than 30 million workers and over $2 trillion in assets. Industry adoption of the BrightScope Rating will lead to more cost-effective plans, increased participation rates, higher employee satisfaction and better outcomes for the 60 million employees who depend on their 401k plan for retirement.

For more information go to BrightScope.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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