Today BrightScope is pleased to announce the Top 30 401k Plans of 2011. BrightScope’s Top 30 list comprises large 401k plans with high overall quality, as measured by the BrightScope Rating. The BrightScope Rating measures how effective a 401k plan is at getting its participants to retirement. More details about the BrightScope Rating can be obtained in the FAQ section of the BrightScope website.

Which traits define the plans that make the Top 30 Plans list ? Here is a quick analysis of the factors that drove top BrightScope Ratings:

1.    Generous Company Contributions:

Company contributions are a major component of the BrightScope Rating and thus the Top 30 Plans List. Offering a match or profit sharing contribution to the plan is a great incentive for employees to participate and defer their salary towards retirement.  The top plan on the Top 30 list, the Southwest Airlines Pilots’ Retirement Savings Plan , matches 100% of elective deferrals up to 9.3% of the participant’s income. This is a substantial increase when compared to last year’s contribution (100% of 7.8% of income). Company generosity for all plan in the Top 30 list has risen significantly from an average of approximately $8,000 per participant to over $11,000 per participant. Clearly company match is back in a big way.

2.    Immediate Plan Eligibility:

A plan’s eligibility period is the length of time between when an employee is hired and when they are eligible to participate in the plan. Short plan eligibility requirements allow new hires to save more towards retirement. This year’s Top 30 list includes twenty-four plans with immediate eligibility. Removing barriers to saving is clearly important to the top plans.

3.    Immediate Vesting:

While a participant’s elective deferrals are always immediately vested, company contributions can take up to six years to vest depending upon the plan. Twenty-five of the Top 30 plans offer immediate vesting of company contributions thus ensuring that the money in their account is theirs to keep. The Bristol-Myers Squibb Company Savings and Investment Program is the only plan within the Top 30 list that requires five years of employment to become fully vested.

4.    Low Fees:

Plan costs can greatly affect investment returns therefore altering participant account balances. BrightScope’s Total Plan Cost (TPC) calculations include investment expense ratios, administrative costs and also fund-level trading and transaction costs. Among plans found in this year’s Top 30 list, the average Total Plan Cost has dropped by 5 basis points to 0.61%. The ExxonMobil Savings Plan has the lowest Total Plan Cost. This is largely due to the company paying for most plan expenses instead of passing that cost to the participants. Many companies within the Top 30 list pay for plan administration expenses in order to provide a plan with low and competitive fees.

5.    High Participation Rates:

The first step in saving for retirement is participating in an employer’s retirement plan. It comes as no surprise that all plans within the Top 30 list have high participation rates. Seven plans have a participation rate of 99% or greater. The following four plans have participation rates of 100%: Wellington Retirement and Pension Plan, Amgen Retirement and Savings Plan,  ExxonMobil Savings Plan, & the Ernst & Young Partnership Retirement Plan.

6.    High Salary Deferrals:

Plans within the 2011 Top 30 list average over $11,600 of salary deferrals per participant. While the salary deferral average is down slightly when compared to last year’s list, it is more than 320% higher than the average defined contribution plan within BrightScope’s database.

Congratulations to the companies that are represented on the list! The Top 30 401k Plans clearly serve as a model for how to encourage proper saving and investing behavior among employees.

The BrightScope 2011 Top 30 401k Plans List:

2011 Rank	2010 Rank	Company/Plan	U.S. HQ	BrightScope Rating
1	3	Southwest Airlines Pilots Retirement Savings Plan	Dallas, TX	90.83
2	1	The Savings Plan of Saudi Arabian Oil Company	Houston, TX	90.82
3	-	Wellington Retirement and Pension Plan	Boston, MA	90.13
4	-	Deloitte Profit Sharing Plan	New York, NY	89.91
5	5	United Airlines Pilot Directed Account Plan	Chicago, IL	89.11
6	4	Amgen Retirement and Savings Plan	Thousand Oaks, CA	88.99
7	6	Employees Savings and Retirement Plan of Credit Suisse Securities (USA), LLC	New York, NY	88.44
8	16	Novartis Pharmaceuticals Corporation Investment Savings Plan	East Hanover, NJ	88.16
9	2	Southern California Permanente Medical Group Retirement Plan	Pasadena, CA	87.57
10	7	Bayer Corporation Savings and Retirement Plan	Pittsburgh, PA	87.37
11	-	Bristol-Myers Squibb Company Savings and Investment Program	New York, NY	87.23
12	13	ExxonMobil Savings Plan	Houston, TX	87.07
13	18	Chevron Employee Savings Investment Plan	San Ramon, CA	87.03
14	14	Sanofi-Aventis US Savings Plan	Bridgewater, NJ	86.96
15	-	BASF Corporation Retirement Savings Plan	Florham Park, NJ	86.95
16	17	Bechtel Trust & Thrift Plan	San Francisco, CA	86.76
17	-	Ernst & Young Partnership Retirement Plan	Secaucus, NJ	86.65
18	15	Anadarko Employee Savings Plan	The Woodlands, TX	86.64
19	-	Google, Inc. 401k Savings Plan	Mountain View, CA	86.61
20	19	Genentech, Inc. Tax Reduction Investment Plan	South San Francisco, CA	86.36
21	21	ConocoPhillips Savings Plan	Bartlesville, OK	86.30
22	12	IBM Savings Plan	Armonk, NY	86.28
23	8	BP Employee Savings Plan	Houston, TX	86.26
24	24	Shell Provident Fund	Houston, TX	86.23
25	29	AstraZeneca Savings and Security Plan	Wilmington, DE	85.92
26	26	GlaxoSmithKline Retirement Savings Plan	Philadelphia, PA	85.79
27	11	UBS Savings and Investment Plan	New York, NY	85.39
28	23	Federal Express Corporation Pilots Retirement Savings Plan	Memphis, TN	85.26
29	28	Goldman Sachs 401k Plan	New York, NY	85.25
30	-	The Vanguard Retirement & Savings Plan	Malvern, PA	85.20

To learn more about the BrightScope 2011 Top 30 401k Plans List please contact us at info@brightscope.com. This award is based on plan experience through 12/31/2010.

*DISCLAIMER: Ratings continually change as data is updated over time. Ratings should be viewed as a “snapshot in time.” To view current ratings information for a given plan click to view the companies plan page. The rating on the plan page may not match the rating at the time of the release of the rankings.

We are very excited to announce some upcoming changes that will make BrightScope’s blog and website more useful for everyone.  Moving forward, our blog will take a slightly different direction.  Up until now, our postings have primarily targeted an audience comprised of financial advisors, retirement professionals, and other financial industry professionals.  We certainly plan to continue this dialogue.  There are two additional goals we want to achieve with our blog postings: 1) increase our communication with  investors using the site and 2) provide more visibility into our product development.  Future blog postings will include product updates, news articles, press coverage, and other buzz relevant to advisors and  investors seeking more information on financial and retirement planning.

Many of you are already familiar with our newest product, BrightScope Advisor Pages.  With BrightScope Advisor Pages, one of our principal objectives is to create a community of users on the site by redefining the way investors and advisors engage with each other.  Prior to the December holiday, we will launch a major new Advisor Pages feature, Advisor Pages Q&A.  Q&A essentially allows users to post questions on any financial topic and allows advisors on the site to answer those questions.  Advisors will also have the ability to contribute and publish financial guides to give current and prospective clients more information on their areas of interest.  By answering questions and contributing financial guides, advisors will raise their visibility on the site, on the BrightScope homepage, and in turn, advisors will interact with more prospective clients.  Our aim is for BrightScope Advisor Pages to become the primary place where investors seek and receive financial advice and where advisors provide financial advice and grow their business.

As part of our Q&A launch, we will roll out a significant homepage redesign to reflect the new Q&A feature and highlight the importance of advisor and investor engagement on the site.  Our homepage redesign will also include two separate search bars, one to search for financial advisors and one to search for retirement plans.  As we accumulated a robust data set on financial advisors, we received feedback from users that it was difficult to find advisors and retirement plans within the same search bar.  We hope that two separate search bars will enable users to easily find what they’re looking for.

We are highly confident that our new Advisor Pages Q&A feature will help us increase the number of  investors and advisors communicating on our site.  An important part of our growth will be investor and advisor participation and making sure that everyone knows about us!  Therefore, we will be dynamically marketing Advisor Pages Q&A in the coming months via our blog, Twitter, LinkedIn, Facebook, the press, and other online and offline mediums.

Throughout the various stages of our product development we want to hear want you like, what you don’t like, and how you would do things differently.  Your feedback is incredibly valuable to us and we encourage suggestions from investors and advisors as to how we can improve Q&A as well as other aspects of BrightScope Advisor Pages.  On our part, we plan to be as open, transparent, and accessible as possible in answering your questions and addressing your comments.  We will post our progress, product tweaks, future features, and illustrate our momentum for you to see.

Together, we will revolutionize the investor-advisor relationship, increase the accessibility of financial information, and allow all of us to make better financial decisions.  As you know, our core mission is to help millions retire in dignity, and we are extremely passionate and committed to achieving this goal.  Thank you all for your continued support!  Stay tuned for more updates on Advisor Pages Q&A as well as our upcoming homepage redesign.

*Please send your thoughts and ideas on Q&A to answers@brightscope.com or write a comment in response to this post.

Popping the Hood, IV Contains a Comprehensive Review of Major Target Date Fund Families

SAN DIEGO, CA–(Marketwire – Oct 18, 2011) – BrightScope (www.brightscope.com), a leading provider of independent financial information and investment research, together with Target Date Analytics (www.ontargetindex.com), the leading independent provider of analysis, theory, and benchmarking of target date funds, today announced the release of Popping the Hood, IV. The newest study in the popular Popping the Hood series provides a detailed analysis of Target Date Funds (TDFs) and fund families, making it the most comprehensive source of information available in the TDF marketplace.

Investor advocates agree that proper disclosures about financial advisors can help investors make better-educated decisions about which advisor to work with and protect themselves against fraud. However, the FINRA Investor Education Foundation recently sponsored a national study of American adults who used a financial services provider in the last 5 years, and found that only 15% did any due diligence on their provider. At BrightScope we believe this percentage is much too low and we aim to make advisor due diligence as easy as possible for investors. One key piece of information available to investors is an advisor’s conduct, which includes customer complaints, disciplinary events and financial matters on an advisor’s record. In this post we will discuss the types of disclosures available about financial advisors, how investors should consider these disclosures in the selection of a financial advisor and the personal experience we have with customer complaints.

Types of Disclosures

There are a variety of disclosures available about advisors from the SEC and FINRA. Below are examples of some of these disclosures and why they matter to investors:

How Investors can use Disclosure Information.

Investors can use disclosure information as a source of questions they plan to ask an advisor in their due diligence process. One or even multiple disclosures should not immediately disqualify advisors from a potential engagement, but should trigger a question from the investor and a conversation with the advisor about the disclosures. As one example, let’s look at customer complaints. Complaints can happen for a variety of reasons. The complaint could come from an advisor’s direct relationship with a client or their role in supervising other advisors. The complaint may arise from a unique event or it may reveal a general industry trend. For example if you review recent complaints, many of them relate to the performance of Auction Rate Securities (ARS). The failures in that market have led to a flood of disputes against FINRA brokers and member firms. In 2008, in response to this activity, FINRA established a separate, specialized arbitration process to deal with ARS complaints. Understanding a complaint triggered by a broad industry event and how that is different than a complaint from an individual client is important.

In our discussions with investors and advisors about the Advisor Pages we have consistently stated that the details of a given disclosure is as important as its existence. All disclosures are not equal. An advisor that has been in business for 30 years is much more likely to have a disclosure than one who has been in the business for 5. With a full 10% of advisors in our database having disclosable events there is a reasonable probability that when vetting advisors you will come across an advisor with a disclosure. If that advisor has a single disclosure or multiple disclosures related to a single event it is important for the investor to ask the advisor about that event’s unique circumstances and make a determination as to the impact of that event on their circumstances. Investors should be cautious when a pattern of disclosures emerges rather than a single event, although all disclosures should be taken seriously.

Our Personal Experience.

My brother Mike Alfred and I have worked as financial advisors and have been regulated by FINRA and the SEC. We have a customer complaint on our record, so we are very familiar with advisor disclosures. Our personal experience with the complaint process and the resultant disclosures is one of the primary reasons we embarked on a mission to make this data more transparent and accessible to investors.

We became financial advisors at AXA Advisors right out of college. In order to learn the business we both did a lot of joint work with experienced advisors. In one particular case a client of a more experienced advisor filed a complaint against the advisor. The complaint alleged that the client purchased “securities, policies, annuities and other financial instruments which were unsuitable, irresponsible, not reasonably needed and lacking a strategy for risk management.” Mike and I were named in the complaint because we received some of the commissions from the product sales.

We played no ongoing role in the arbitration and when AXA ultimately decided to settle (without admission of wrongdoing), we were not required to pay any of the settlement. However, we did learn a lot through this process about how FINRA arbitration works, about U-4’s and U-5’s, and perhaps most importantly about the suitability standard of care. FINRA-regulated brokers are held to a ‘suitability standard’ that requires that products sold must be suitable to the client. The sales culture of our firm at the time really pushed insurance product sales and that is how advisors were measured and compensated. While we really wanted to be trusted advisors, we realized through the process that we were looked at by our firm and by our clients as salespeople, not advisors.

Mike and I ultimately decided that the sales culture at our firm and the suitability standard did not fit the types of relationships we wanted to have with our clients. It was around this time that we discovered that there was another way to do business, as an RIA. We spoke with a few local RIA’s and realized that operating under the fiduciary standard and not selling any products was the way we wanted to work with our clients. We later left the broker-dealer world and established our own SEC registered firm, Alfred Capital Management. While running Alfred Capital Management we had great relationships with our clients and had no complaints or disclosure events. When we eventually shut the firm down to run BrightScope full time we did so on our own terms and helped our clients successfully transfer their accounts to other local RIA’s that we helped them vet.

We are absolutely committed to bringing transparency to the financial markets. Just like every one of the nearly 450,000 advisors/brokers in the database we have our disclosure history on our BrightScope Advisor Page profiles. You can view Ryan’s page here and Mike’s page here. We think this information is vital for consumers to ensure they can do thorough due diligence before hiring an advisor.

Last Tuesday, we announced the launch of BrightScope Advisor Pages^TM. With detailed data on over 430,000 advisors and 40,000 advisory firms, BrightScope Advisor Pages^TM is the first comprehensive, free, easily searchable database of financial advisors. In the first week since launch journalists from USA Today, Dow Jones, Bloomberg, the Associated Press, the Wall Street Journal, CNN Money, Reuters, the Street.com, TechCrunch and Yahoo! Finance have all covered the Advisor Pages. The coverage attracted a high volume of interest from consumers, and the number of pageviews on Advisor Pages in the last week suggests that consumers are hungry for this information.

The Simple Advisor Pages Search Interface

Why the Advisor Pages are Important

Over the past few years there have been numerous articles advising consumers on how to find a qualified financial advisor. Despite the volume of articles on the topic, most consumers remain woefully unprepared to research and find a qualified financial advisor. While there are some databases of advisors out there in the marketplace, none are comprehensive, many charge the consumer for access, and none have the kind of detailed disclosure information that is required to perform thorough due diligence. The government databases – primarily from the SEC, FINRA and state insurance and securities regulators – are difficult to access, don’t have robust search capabilities, are full of legalese, and are not indexed by Google. These shortfalls make the government disclosures all but irrelevant.This is a big issue. In a time of financial crisis and after we have come to terms with numerous frauds in the investment world, it is vitally important that consumers have access to the data they need to make smart financial decisions. For many, this means making one major decision – choosing a financial advisor. At BrightScope we believe that the best way to help consumers find the right advisors and to help advisors grow their businesses intelligently is to create a simple, comprehensive, search-friendly database of financial advisors. The launch of BrightScope Advisor Pages^TM is the first step in that process.

The Role of Government in Disclosure

Fortunately we are not the only folks committed to improving advisor disclosure. Just last year Congress passed a comprehensive financial reform bill that included a mandate for the government to disclose more and better information about financial advisors. To start, the Dodd Frank reform bill required the commissioning of a study to decide how to improve financial advisor disclosure. That study is a must read and can be found here. Unfortunately, while the intent was good, the result fell short in many material ways. It is as if the authors were not aware of the great advances in open government data that have taken place over the past few years. The most significant issue is that the study continues to recommend an enhanced role for government in the online publishing of disclosure data. We argue for the private market approach best expressed by Robinson, Yu, Zeller et. al. in their seminal treatise on the changing role of government, Government Data and the Invisible Hand:

In order for public data to benefit from the same innovation and dynamism that characterize private parties’ use of the Internet, the federal government must re-imagine its role as an information provider. Rather than struggling, as it currently does, to design sites that meet each end-user need, it should focus on creating a simple, reliable and publicly accessible infrastructure that “exposes” the underlying data. Private actors, either nonprofit or commercial, are better suited to deliver government information to citizens and can constantly create and reshape the tools individuals use to find and leverage public data.

Many government entities – including HHS, EPA, and the cities of Seattle/San Francisco – have successfully embraced this approach and have as a result greatly expanded the utility of their data. Government entities have completed this at a significantly lower long-term cost than building complicated disclosure websites. Unfortunately, the SEC study on advisor disclosure argued for just the opposite. The study’s authors suggested several minor improvements to the existing disclosure websites, but did nothing to make the data more easily accessible to private actors.

We strongly believe that the best use of government dollars (SEC) and SRO dollars (FINRA) is not a long and complicated study, review, procurement, or rulemaking process that will take years to yield improvements which by the time they are launched will already be outdated. By mandating the right types of disclosures and then making that data publicly available, government/SRO’s can save a whole lot of money and let the market do more to self-regulate.

The Pushback

As former financial advisors ourselves, we knew that we would receive some strong pushback from the firms and advisors in the database. Industry message boards quickly lit up with mostly anonymous comments – both positive and negative – about the quality of the Advisor Pages data and particularly BrightScope’s role as a for-profit business in the disclosure process. We have given it a few days to percolate and now hope to address some of the criticism we have received:

1. Data Quality: The biggest criticism thus far has been about data quality. A journalist we respect – Jessica Toonkel from Investment News – wrote an article titled ‘Advisors Take a Dim View of BrightScope‘ in which several advisors voiced their concern that some of their data is incorrectly displayed on BrightScope Advisor Pages. Here are the highlights:
   1. Overall Data Accuracy: When Jessica reached out to us and shared the concerns of a few advisors we were able to show that in the vast majority of cases the data integrity issues raised were actually cases where the advisor was either unfamiliar with their own public filings or made a mistake in their filing. While we can’t guarantee the accuracy of our data in all cases, no advisor data provided by Investment News revealed inaccuracies in BrightScope data per the government filings BrightScope obtained late last year. If an advisor does find a material discrepancy between our website and the filing we used, we encourage them to reach out to us so that we can quickly address the issue.
   2. Assets Under Management (AUM): In the same article, Investment News  performed a survey asking if the advisor’s assets under management were correct. 84% of advisors responded that their AUM numbers were not accurate. However, in all the cases brought up by Investment News BrightScope shows the exact same AUM number as displayed on the SEC ADV filings as of year-end 2010. Why then are the advisors upset? As it turns out most advisors either don’t agree with the SEC methodology for calculating AUM (the SEC excludes AUA from AUM and thus understates the actual total assets managed by the advisor) or they are dually-registered with FINRA, which currently doesn’t require AUM disclosure. BrightScope also uses firm-level AUM numbers rather than individual advisor AUM, which some advisors argue can lead to inaccuracies. We understand these concerns and are very sensitive to them. We know that while their anger is addressed at us, the issue is really with the current SEC/FINRA disclosure regime from which we obtain our data. To address this issue we are working with the more than 75 advisory firms that are either clients or beta testers to develop a more comprehensive AUM calculation methodology, and will ultimately allow advisors to update their AUM numbers at no cost. This is the type of fast action and responsiveness that the private market can support that can’t be matched by government. Stay tuned for an announcement in the next few weeks when this new system has been launched.
2. Data Timeliness: Because the SEC/FINRA do not make their databases available in machine readable formats, the process of obtaining the data is costly and time consuming. In fact, the SEC/FINRA actively seek to prevent the use of their data by the public. While the SEC claims to not “necessarily oppose the widespread dissemination of registration information” it currently employs expensive private market solutions as counter-measures to prevent access to this public disclosure data. (It is worth noting that the collection, disclosure, and ‘defense’ of the disclosed data is paid for with taxpayer dollars.) In order to overcome these hurdles we frequently have to go through the states, which adds an extra layer of bureaucracy to accessing new filings. That said, we are working on ways to access new advisor and firm filings quickly and hope that we can further reduce the short time lag between filing and updating the Advisor Pages. If the SEC is to comply with the recent Presidential memorandum on regulatory transparency it will likely seek to make advisor data more readily available in the future. For the time being, we encourage all advisors looking to update their Advisor Page to send over their new filing at the same time it is filed with SEC/FINRA so that we can expedite the processing on our end. We will of course do this at no cost.
3. BrightScope’s Business Model: One of the most interesting pieces of feedback we have received relates to our business model. Some advisors have expressed concern that in order to update some parts of their Advisor Pages – AUM, client types, photos, description, designations, links to blogs etc. – they need to be a subscriber. One advisor said he felt like has was being “held hostage” by BrightScope. Again, we are sensitive to these concerns. The first thing an advisor can do if they think data is inaccurate on our site is to compare it to their current ADV filing. We have found that in 90% of cases the inaccurate data is actually data that was inaccurately filed with the SEC/FINRA by the advisor and the inaccuracy is simply being reflected on the BrightScope website. If the advisor wants to fix this data they can simply update their filing and BrightScope will update our database.  We are also working on making certain pieces of data where the advisor feels the SEC rules are too restrictive – assets under management and client types – free to update and change. However, if the advisor wants to pursue full customization and add data that is currently unavailable through the SEC/FINRA we will continue to offer a subscription at $100/month. With the traffic volumes we are seeing and with future enhancements we are planning, we expect Advisor Pages to be one of the most effective marketing tools available to advisors.

The Path Forward

While I spent a good piece of this blog post responding to criticism I would like to point out that internally we see far more positive comments than negative. It is our job to balance both forms of feedback to ensure we are building a product that will meet the needs of consumers and advisors. Just this morning we received the following unsolicited feedback from an advisor:

“(K)eep moving forward on the Advisor Pages project in spite of the protests. There is no way for the average investor to use the internet to find comprehensive data for finding a decent financial advisor or for researching a financial advisor they have already met. The SEC and FINRA sites are needlessly complex and nearly impossible to use for most investors, as well as all parts of the ADV. There will be some growing pains here, but overall the outline we see so far is a huge step in the right direction for investors.”

This type of feedback from advisors encourages us to push forward, while also aggressively pursuing updates and improvements to address the concerns of those advisors who are skeptics. I think many advisors will find that if they reach out to us and start a dialogue that we are very responsive and excited to work with them. We view this initial Advisor Pages launch as the first step in a grander vision of simplifying financial decision-making for consumers. We appreciate your support as we pursue that goal.

We have many enhancements and improvements we will be rolling out in the next few weeks and are excited to share them with you. Please reach out to us via email with questions and feedback: advisorpages@brightscope.com.

Thanks,

The BrightScope Advisor Pages Team

Today BrightScope is pleased to announce the Top 30 401k Plans of 2010. BrightScope’s Top 30 list comprises large 401k plans with high overall quality, as measured by the BrightScope Rating. The BrightScope Rating measures how effective a 401k plan is at getting its participants to retirement. More details about the BrightScope Rating can be obtained in the FAQ section of the BrightScope website.

What traits define the plans that make the Top 30 Plans list ? Here is a quick analysis of the factors that drove top BrightScope Ratings:

1. Generous Company Contributions: One of the surest ways to appear on the Top 30 list is to offer a generous match. An employer matching contribution encourages employee participation and increases salary deferrals.  To be competitive on the Top 30 list companies must have a high level of company contributions per participant, which is indicative of generous matching and profit-sharing contributions. The top plan on the Top 30 list, the Saudi Arabian Oil Company, matches 100% up to 9% of employee contributions. The 5th rated  United Airlines Pilot Directed Account Plan, offers a 16% non-elective contribution for all participants. IBM vaulted up the list after changing its match structure from 50% to 6% of pay up to a generous 100% of 5% of pay with an extra 1% thrown in on top. Other companies on the list exhibit similarly generous plan design and as a result show high company contributions. On average companies on the list provided $8,700 in company contributions per active participant. Just as IBM saw its rating increase as its match improved, cutting the match caused a few plans to drop off of the Top 30 list. FreeScale Semiconductor and Motorola  suspended their match and have since fallen out of the top 30.

2. Immediate Plan Eligibility: Plan eligibility is the length of time between when an employee is hired and when they are eligible to participate in the plan. The shorter the time period the better. Twenty-five (25) of the thirty (30) plans on the list offer immediate eligibility to the plan. Last year 23 out of 30 plans offered immediate eligibility. The longest eligibility period was 12 months, for the 22nd rated American Airlines Pilot Retirement plan. This was twice as long as the next longest eligibility period of 6 months for the Federal Express pilots.

3. Immediate Match Eligibility: Five plans on this years list make employees wait an additional period of time to be eligible for employer matching contributions, which is up from just two plans last year. IBM made this change recently, requiring 11 months of service for match eligibility. For the rest of the plans employees are immediately eligible for matching contributions when they become eligible for the plan.

4. Immediate Vesting: All but one of the plans on the top 30 list offer immediate vesting to plan participants. Last year UBS had a 5 year cliff vesting schedule, which was the longest vesting schedule of a plan that made the 2009 list. UBS has since changed to immediate vesting, which played a part in the plan powering to 11th on this year’s list. Exxon is the only plan with a vesting schedule, 3 year cliff, but given the generosity of the plan and the average tenure of the plan’s participants it is unlikely too many Exxon employees are complaining.

5. Low Fees: With all of the goings-on in DC around fee disclosure and with several new regulations out of the Department of Labor over the last 12 months fees will again be an issue of prime importance for plan’s on this list. While many of the plans on this list offer competitively priced funds and services, there is an 0.80% difference between the lowest cost plan on the list and the highest cost plan according to our cost calculations. BrightScope’s Total Plan Cost (TPC) calculations include investment expense ratios, administrative costs and also fund-level trading and transaction costs. To read more about how we calculate these costs and why we include them, please read this blog post. Two of the plans with the lowest all-in fees (including fund-level trading costs) – Chevron and ExxonMobil – benefit from having over 50% of their plan’s in company stock, which is very inexpensive to manage but entails plenty of other fiduciary hazards.  Once again IBM has the lowest total costs, using its almost $32 billion in assets to muscle their fees as low as possible.  All told the average total cost of plans on the list is 0.67%, a full 10 bps higher than last year’s list and definitely something to keep your eye on for next year.  There are 4 plans on the list with total fees above 1% all of which use a healthy dose of retail mutual funds.

6. High Participation Rates: Participation is critical to ensuring retirement outcomes for participants. BrightScope calculates a plan’s BrightScope rating based on the performance of the average participant, so if a lot of employees are not taking part in the plan the plan’s rating can suffer. It should come as no surprise then that there is not a single plan on the list with a participation rate below 90%.  The average participation rate among plans on the Top 30 List is 96%, with ExxonMobil, Amgen, Southern California Permanente and American Airlines Pilots all obtaining 100% participation. This group of 30 also appears willing to adopt automatic enrollment features. In fact, three of the plans on the list -IBM, Pfizer and Amgen – not only offer automatic enrollment, they have a very high default deferral rate.  Both IBM and Amgen have default deferral rates of 5% and Pfizer has a default deferral rate of 6%. BrightScope applauds these sponsors for embracing automatic plan features.

7. High Salary Deferrals: High participation is great, but salary deferrals ultimately drive participant outcomes. The more people save in their 401k plan, the more they receive in company match, and the more their 401k savings compound over time. It is no secret that plan funding is the number one determinant of retirement success. It should come as no surprise then that only 8 plans on the list have salary deferrals below $10,000 per participant, with an average salary deferral of $12,200. The salary deferral average is up over $1,200 from last year. At the top of the list for salary deferrals is Saudi Arabian Oil Company, Southern California Permanente and Federal Express pilots each of which had over $15,000 in salary deferrals per employee . Bayer used rising participation and salary deferrals to jump to 7th on this year’s list.

The BrightScope 2010 Top 30 401k Plans List:

2010 Rank	2009 Rank	Company/Plan	BrightScope Rating	U.S. Headquarters
1	1	The Savings Plan of Saudi Arabian Oil Company	93.17	Houston, TX
2	N/A	Southern California Permanente Medical Group Retirement Plan	89.96	San Diego, CA
3	4	Southwest Airlines Pilots Retirement Savings Plan	89.04	Dallas, TX
4	10	Amgen Retirement and Savings Plan	88.40	Thousand Oaks, CA
5	2	United Airlines Pilot Directed Account Plan	88.30	Chicago, IL
6	9	Employees Savings and Retirement Plan of Credit Suisse Securities (USA), LLC	87.35	New York, NY
7	20	Bayer Corporation Savings and Retirement Plan	87.26	Pittsburgh, PA
8	12	BP Employee Savings Plan	86.99	Houston, TX
9	11	Nucor Corporation Profit Sharing and Retirement Savings Plan	86.97	Charlotte, NC
10	25	Avaya Inc. Savings Plan for Salaried Employees	86.88	Basking Ridge, NJ
11	21	UBS Savings and Investment Plan	86.73	Stamford, CT
12	28	IBM Savings Plan	86.66	Armonk, NY
13	8	ExxonMobil Savings Plan	86.45	Houston, TX
14	N/A	Sanofi-Aventis US Savings Plan	86.42	Bridgewater, NJ
15	N/A	Anadarko Employee Savings Plan	86.35	The Woodlands, TX
16	N/A	Novartis Pharmaceuticals Corporation Investment Savings Plan	86.26	East Hanover, NJ
17	N/A	Bechtel Trust & Thrift Plan	86.17	San Francisco, CA
18	7	Chevron Employee Savings Investment Plan	85.95	San Ramon, CA
19	N/A	Genentech, Inc. Tax Reduction Investment Plan	85.59	South San Francisco, CA
20	N/A	Altria Deferred Profit-Sharing Plan for Salaried Employees	85.35	San Francisco, CA
21	6	ConocoPhillips Savings Plan	85.22	Houston, TX
22	N/A	American Airlines, Inc. Pilot Retirement Benefit Program Variable Income Plan	85.11	Fort Worth, TX
23	27	Federal Express Corporation Pilots Retirement Savings Plan	85.10	Memphis, TN
24	N/A	Shell Provident Fund	84.80	Houston, TX
25	N/A	Sun Microsystems, Inc. Tax Deferred Retirement Savings plan	84.72	Santa Clara, CA
26	23	GlaxoSmithKline Retirement Savings Plan	84.68	Philadelphia, PA
27	N/A	Cisco Systems, Inc. 401k Plan	84.66	San Jose, CA
28	N/A	Goldman Sachs 401k Plan	84.56	New York, NY
29	N/A	AstraZeneca Savings and Security Plan	84.53	Wilmington, DE
30	13	Pfizer Savings Plan	84.52	New York, NY

Overall the list got more competitive than the previous year. To make the list a plan needed a rating above 84.5 whereas last year the 30th rated plan had a rating of 81. Many of the plans that are no longer on this list did not get worse, but simply did not keep pace with the plans that experienced large gains. Here are the plans that are no longer on the top 30 List for 2010: Paccar Inc. Savings Investment Plan, The Cargill Partnership Plan, Textron Savings Plan, Valero Energy Corporation Thrift Plan, Freescale 401k Retirement Savings Plan, the 401k Savings and PSP McGraw Hill, Schering Plough Employees Savings Plan, Motorola Inc 401k Plan, Nortel Networks Long Term Investment Plan, Lockheed Martin Corporation Salaried Savings Plan and the General Dynamics Corporation Savings and Stock Investment plan.

To learn more about the Top 30 Plans List please contact us at info@brightscope.com. This award is based on plan experience through 12/31/2009.

*DISCLAIMER: Ratings continually change as data is updated over time. Ratings should be viewed as a “snapshot in time.” To view current ratings information for a given plan click to view the companies plan page. The rating on the plan page may not match the rating at the time of the release of the rankings.

Last week the Department of Labor published its final rule on participant fee disclosure, which is the last step in the Department’s three pronged, multi-year approach to increasing fee transparency in the defined contribution marketplace. Before we dive in to the participant fee regs, lets quickly review the Department’s first two fee disclosure initiatives:

1. Disclosure to Government: The first step towards fee transparency was the new Schedule C disclosure requirements that went into effect last year. The new, expanded Schedule C requires enhanced reporting of indirect compensation (revenue sharing) received by service providers. The extension filing deadline for the Form 5500 was last Friday October 15th, so we expect to begin reviewing and incorporating the additional Schedule C information into our plan fee calculations and products in the next few weeks. Of particular interest with the new Schedule C will be enhanced disclosure of service providers who only receive revenue sharing payments (some brokers, TPA’s and recordkeepers) as well as listings of service providers who failed to make the disclosures in time for sponsors to file the Form 5500. Industry watchers currently believe that failure to comply with the new Schedule C disclosure requirements will likely lead to an immediate DOL audit.
2. Disclosure to Plan Sponsors: The second step was the enhanced disclosure to plan sponsors by service providers. This interim final regulation, called 408(b)(2) by the industry, was published in the Federal Register on July 15th and is due to go in to effect July 16th of next year. Among other things it requires advance disclosure to plan fiduciaries of a services provider’s expected direct and indirect compensation from the retirement plan.

So, the Department has been busy, but the real fireworks have not begun yet. Enhanced form 5500 disclosures and enhanced disclosures to plan sponsors are important, but disclosures to plan participants is the critical piece that ties the system together and ensures a strong accountability link between the participants, the plan sponsor fiduciary and the service providers. Here are some highlights of the final rule, called the “Fiduciary Requirements for Disclosure  in Participant-Directed Individual Account Plans”:

• Effective Date: The new rule goes into effect for plans with year ends after November 1, 2011. This is much faster than what would have been accomplished via the legislative approach and is thus a big win for fee disclosure proponents. If the Miller bill had passed it likely would have had an effective date 12-24 months after this rule’s effective date.

• Plan Coverage: The Department has decided that participant fee disclosure should occur for all participants regardless of the size of their plan. Currently only plans with more than 100 participants are required to fill out the new expanded Schedule C and obtain an annual plan audit. Requiring equivalent levels of fee disclosure for small plans is critical to ensure benefit adequacy for those working for smaller companies.

• Administrative Expenses: Importantly, fee disclosure in individual account plans extends beyond the fees charged within the plan’s investment options and includes general plan administrative services like recordkeeping, legal and accounting. The disclosure also addresses fee equity issues that we have addressed previously, requiring disclosure of whether fees are charged pro rata or per capita. This is important because it will likely come to light that some participants are bearing a higher burden of administrative charges based upon the size of their accounts or the types of investments they hold. How participants might react to this information is hard to guess, but I think many will be surprised by the types and quantities of fees they are paying.

• Disclosure Timing: Although many of the expenses charged against the plan are annual in nature, the rule requires quarterly disclosure to participants. The lumpiness of some administrative fees over the course of the year (legal and accounting bills typically are paid out of the plan once a year and at the same time) might create some confusion from investors and need to be explained by advisors and sponsors. Their is the potential that quarterly disclosure might create an incentive for more plans to pay these fees with revenue sharing recapture or ERISA spending accounts so that they can be deducted slowly over the course of the year rather than in a single lump sum. It remains to be seen what the impact will be on the billing practices of service providers with the knowledge that their fees will now show up on a quarterly participant disclosure.

• Revenue Sharing: The Department has taken the stance that fund-level revenue-sharing detail need not be disclosed to participants, but that participants should be aware that that revenue-sharing exists and that administrative services are not free. The argument that fund-level arrangements would be costly to disclose and may not help participants make fund decisions was accepted by the Department. This is one area where the Department dialed back the disclosure a bit and compromised with the industry.

• Investment Labeling: The Department struck the requirement to include a label of whether or not an individual investment option is “actively” or “passively” managed. Many commentors felt the disclosure was duplicative, as most passively managed options have the word “index” in their name. The Department agreed with this logic and removed the requirement.

• Investment Benchmarking: The Department retained the requirement to compare investment returns to a broad-based market index that is unaffiliated with the investment firm. In the case of funds that have a mix of equity and fixed income exposure the rule permits the blending of multiple market indexes. Of particular interest here will be seeing which target date index becomes the industry standard and is widely adopted by service providers in participant-level disclosures.

• Dollar-Based Disclosure: In addition to expense ratios the disclosures will also feature dollars per thousand as a way to communicate the cost of the plans. The hope is that dollar-based disclosures will do a better job of helping participants understand their fees than percentages.

• Turnover Disclosures: BrightScope has consistently advocated for more transparency around fund management costs arising from the buying and selling of underlying securities. The Department seems to agree on this issue, re-enforcing its opinion that trading costs matter: “trading costs are not included in an alternative’s expense ratio, yet the cost of trading on a portfolio level does have an effect, on the alternative’s rate of return.” For more information on this issue we recommend reading BrightScope’s Transaction Cost White Paper. The good news is that the DOL has required turnover disclosures for all investment options, not just those currently subject to SEC rules. This means that collective trusts, separate accounts and other non-registered vehicles will have to calculate and disclose portfolio turnover in a manner consistent with SEC Form N-1A or N-3. Employer stock funds and “fixed” funds are exempted from this requirement. The one problem will be helping participants understand how the turnover rate impacts them from a fee perspective. Our transaction cost algorithm converts turnover metrics into a transaction cost estimate expressed in % form making it easier for investors to compare it to the expense ratio. Without this additional analysis a pure turnover comparison may not add a lot of value to participants.

• 404c Redundancy: The final rule eliminates references to 404c disclosures that are now encompassed in the new 404a language. The aim was for the final rule to establish “a uniform disclosure framework for all participant-directed individual account plans.” So, at least from a fee disclosure perspective, all plans are held to the same disclosure standard and additional fee disclosure to obtain 404c coverage is effectively dead.

The impact of this new rule will be substantial and the effect of the trio of new government, plan sponsor and participant level fee disclosures will dramatically enhance the ability of companies of all sizes to benchmark their fees and determine if their fees are reasonable. In light of these new disclosures, plan fiduciaries should re-new their understanding of their ERISA duties relating to maintaining reasonable fees and selecting and monitoring service providers. What will you do with this new fee data? How will you use it to evaluate your service providers? Now that you know what your fees are, how will you ensure your fees are reasonable? Constructing a process to deal with this issue will be critical and having the data in hand removes all doubt that the data is unavailable or hidden.

No discussion of the DOL’s approach to the issue of retirement plan fees is complete without an evaluation of their motivation for pursuing fee disclosure in the first place. As a part of their final rule on participant fee disclosure, the Department shored up its economic justification for enhanced disclosure. The Department cites two primary benefits of the rule: (1) reduced time for plan participants to collect and compare investment-related fee and performance information; and (2) improved investment results for plan participants. The Department quantifies the first benefit (savings of between $7 and $30 billion) but does not quantify the second benefit, yet it is the second that is perhaps most interesting from an economic perspective.  With enhanced information on fees will participants be able to better select investment options? Will the increased transparency strengthen competition between investment products and drive down fees? The Department believes this to be the case, but updated its economic logic a bit to ensure they stood on solid footing. To make their case the Department made several points, of which I will highlight the two that provide the most insight into the Department’s thinking:

1. Expense Sensitivity: The Department believes that more sophisticated investors are more sensitive to fees and that many individual investors, including DC plan participants, historically have not factored expenses optimally into their investment choices. Hard to argue with this logic, especially given results like AARP’s 2007 survey in which 65% of surveyed participants believed their retirement plans had no fees. When these investors find out that they are paying fees they will probably develop some level of sensitivity to the fees, seeking lower cost options or putting pressure on plan fiduciaries to offer lower cost options.
2. What Expenses Buy: The Department points to research that looks at the links between investment costs and “observable attendant financial benefits such as performance” and finds that much of the fee markup in mutual funds pays for distribution expenses rather than expenses that lead to higher returns. But, the Department doesn’t take a firm stance here saying that market conditions that may lead to inefficiently high prices – namely imperfect information, search costs and investor behavioral biases – “likely exist to some degree in particular segments of the DC plan market.” But, the Department goes on to say that “there is a strong possibility that at least some participants pay inefficiently high investment prices.” Again, in a world where most economists accept that no market is perfectly efficient and the field of behavioral finance is burgeoning, this isn’t exactly the Department going out on the limb to make the case for the need for full disclosure. The test will be whether or not bottom-up pressure from newly empowered participants will encourage a more thoughtful conversation about the role of fees in retirement plans. When that conversation occurs, it will likely lead to the same conclusion that fund ratings firm Morningstar drew about fund performance; fees are the single most important factor, more important than the Morningstar Rating.

It has been a busy year for the DOL on the fee disclosure front. Now the onus is on the industry to implement and comply with the new regulations. There will certainly be winners and losers from fee transparency, but the hope is that the net effect is superior retirement outcomes for plan participants.

Links for further reading and research:

• DOL’s Final Rule
• DOL’s Fact Sheet
• The DOL’s model fee disclosure chart
• The WSJ on Fee Disclosure
• RIABiz.com on Fee Disclosure

This week BrightScope announced the launch of BrightScope Beacon, a revolutionary new way for asset managers to understand the retirement marketplace. We are proud to announce that MFS is the first asset manager to begin using the Beacon product. We are also happy to be working with the team at Mercatus Partners who are helping us refine and distribute Beacon.

An Overview of Beacon:

Beacon fundamentally changes the way asset managers approach the Defined Contribution marketplace.  Beacon analytics can inform your go-to-market strategy, how your sales force is organized and compensated, how your product lineup is designed and priced, and how the firm can effectively capitalize on distribution opportunities at the platform, advisor, sponsor and plan level. In short, Beacon links strategic firm-level decision making to plan-level market intelligence and sales opportunities, driving measurable operational and sales efficiencies.

Capabilities:

• BrightScope Beacon provides detailed DC distribution data for every fund in the Defined Contribution marketplace, covering nearly 90% of all assets in the corporate defined contribution marketplace.

• Beacon contains detailed information on every fund: total number of plans, average plan size and average size of a holding within those plans. In addition a full listing of plans using the fund with contact information can be exported into your CRM software.

• Beacon allows you to build custom territories and view each fund’s distribution geographically. You can discover where your distribution is strong or weak and structure your territories to optimize your internal strengths and weaknesses.

• Identify distribution through consultants/advisors and recordkeeping platforms.

To learn more about BrightScopeBeacon’s capabilities please contact us at Beacon@BrightScope.com.

BrightScope CEO Mike Alfred discusses the top funds in 401k Plans on CNBC:

For more background on BrightScope Beacon check out the following media coverage:

• Press Release – Top 10 Funds in America’s 401k Plans
• Press Release – BrightScope Beacon
• The Most Popular Funds in the 401k Market – InvestmentNews
• Crunching the Top Retirement Plan Funds – TheStreet.com
• Fidelity Leads in Retirement Plan Assets – Reuters
• MFS is First to Try New BrightScope Tool – 401kWire (requires subscription)
• A New Data Beacon Guides Fund Firms to 401k – MutualFundWire
• BrightScope Aims to Shed Light on DCIO Distribution – Ignites (requires subscription)
• Usual Suspects Claim 10 Biggest Funds in DC Plans – Ignites (requires subscription)
• The Top Investments for Your Retirement, Part 1 – Motley Fool
• The Top Investments for Your Retirement, Part 2 – Motley Fool

For more information about BrightScope Beacon do not hesitate to contact us at beacon@brightscope.com.

Today BrightScope, in partnership with Target Date Analytics, filed a comment letter on the SEC’s proposed rule on Target Date Retirement Fund names and marketing. The comment period for the proposed rule ends today.

In short we believe the SEC proposal has serious limitations and does not effectively address the misleading nature of target date fund names.  In our comments we suggest a simple, straightforward approach to regulation that will alleviate concerns about misleading fund names without stifling innovation from fund companies:

Click the image to download in PDF Format.

To read the proposed rule and view other comments on the rule, visit the SEC website here.

Last week the House of Representative passed the American Jobs and Closing Tax Loopholes Bill (H.R.4213) aka “Tax Extenders Bill”. The bill is significant because it extends unemployment benefits and small business loan programs that were set to start expiring this week. To prevent lapses, many Congress-watchers expected the Senate to pass this bill before the Memorial Day holiday. But, the bill faced some unexpected hurdles last week. Fiscal conservatives worried about its impact on the deficit. Venture capitalists worried about the new tax treatment of carried interest. Some bargains had to be made and the bill lingered in the House all week, ultimately passing after the Senate’s self-imposed deadline. However, none of the issues raised in the House related to the fee transparency portion of the bill and most believe that this piece of the legislation has enough support in the Senate to remain intact.

If the bill were to pass, this would be yet another big win for George Miller and his staffers, after what has been a nearly 5 year battle to pass fee transparency legislation. But, in Washington, nothing is certain. The bill is likely to be debated in the Senate starting early next week. The extra 10 days to review the bill in detail will elicit some additional lobbying and debate and lead to some additional changes that may need to be reconciled. That said the likelihood of passage has never been higher.