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Where can I find a detailed articulation of your method for evaluating retirement plans?

Oct 02, 2013 by Mike from Chicago, IL in  |  Flag
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BrightScope Level 11

Mike,

Thank you for your question. While we do factor costs and fees into our BrightScope Rating, it is just one part of our calculation. The rating takes in 200+ unique data inputs per plan, and is 100% quantitative. The algorithm runs thousands of simulations for each plan in order to determine how quickly each 401k plan will get the average participant to retirement. While there are strengths and weaknesses to any investment management strategy, the BrightScope Rating Engine is a nondeterministic system that runs thousands of simulations of future return paths for the asset classes represented in company 401k plans. Historical alpha for funds, historical covariances of asset classes, and fund-level fee information are all used as inputs to the simulations.

This approach is necessary to ensure that every factor that affects retirement outcomes – company contributions, fees, vesting schedules, eligibility periods, etc. – is taken into account, not just fees. For a more detailed description of our calculation, please see our FAQ page located here: https://www.brightscope.com/faq/401k-retirement/

Also, for any further questions please feel free to email us at info@BrightScope.com.

1 Comment   |  Flag   |  Oct 02, 2013 from San Diego, CA
Mike

Thank you for this information, this is helpful.

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Flag |  Oct 02, 2013 near Chicago, IL

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2 votes

Hi Mike,

I'm not sure about the specific method employed by BrightScope for evaluating a retirement plans. Our firm use a few proprietary tools that allows us to evaluate a comprehensive retirement plan review from a fiduciary compliance perspective.

For example, other than reviewing the Investment Policy Statement (IPS) -something that should be standard practice for anyone who evaluates a retirement plan- we also utilize a few different software tools that helps us to conduct excellent in-depth benchmarking & comparative analysis on a Plan. The end result is that we are able to evaluate fees, plan design and participant success measures.

Furthermore, our retirement plan review & analysis builds custom benchmark groups tailored to each plan’s characteristics. This process identifies plans with similar economic profiles, cost structures and designs. Some of the factors considered are plan size, number of participants, company industry, employer match and allocation to index funds. By grouping like plans together, we provide the context needed to accurately assess relative plan fees, support, services and success measures.

If you would like to discuss our retirement plan review, benchmarking and comparative analysis service, I can be reached at: (240) 245-3434 | msmith@wcfingroup.com.

Thanks for submitting your question.

3 Comments   |  Flag   |  Oct 02, 2013 from Bethesda, MD
Mike

Martin, thank you for your reply. However, I was hoping for an answer from the folks at Brightscope. Having been in the industry for many years, I am well aware of the variety of ways in which retirement plans are evaluated. My primary concern with the Brightscope methodology is that their huge emphasis on costs seems to lead to poor rankings for clients whose investment array is not primarily composed of cheap passive investment solutions. In using this approach as a key determinant to the quality of a plan, this can be a disservice to all clients with investment arrays not structured in this fashion. I recognize that fees are very important in determining retirement plan success. However, active investment management versus passive investment management has been a debate for the ages and I don't know that the folks at Brightscope should be trying to force this judgment upon plan sponsors that don't recognize the magnitude of this factor in determining their Brightscope ranking. Hence, I am trying to identify the magnitude of this factor in their ranking process.

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Flag |  Oct 02, 2013 near Chicago, IL
Martin A. Smith, CRPC®, AIFA®

Sorry Mike, I wasn't aware that you are a financial advisor.

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Flag |  Oct 02, 2013 near Bethesda, MD
Mike

no problem

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Flag |  Oct 02, 2013 near Chicago, IL

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