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How To Tell If Your 401(k) Is Gold -- Or Lead

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As retirement savings vehicles, 401(k)s can be golden paths to retirement, or lead weights. The overall quality is mostly dependent upon the attention and generosity of your employer.

Of course, some 401(k)s will get you to your retirement goals faster than others. Plans loaded with high expenses and stingy on employer contributions will slow you down.

How do you know how your plan rates? You need to run some comparisons. BrightScope, the plan rating service, evaluates plans every year for performance and features. Their most recent survey of plans highlights the best features that allow employees to save as much as possible.

What do the best plans have in common? They help you save in every possible way and share these features:

1. Generous Company Contributions

"Offering a match or profit-sharing contribution to the plan is a great incentive for employees to participate and defer their salary towards retirement. Delta Pilots Savings Plan and American Airlines, Inc. 401(k) Plan for Pilots were some of the most generous plans on the Top 30 List. The average company generosity was over $15,000 per participant and can be in the form of a company match or profit-sharing."

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. Removing barriers to saving is important to the top plans."

3. Immediate Vesting

"While a participant’s contributions are always immediately vested, company contributions can take up to six years to vest depending upon the plan. Twenty-nine of the Top 30 plans offer immediate vesting of company contributions thus ensuring that the money in their account is theirs to keep."

4. Low Fees

"Plan costs can greatly affect investment returns therefore altering participant account balances. Among plans found in this year’s Top 30 list, the average Total Plan Cost dropped to 0.22%."

5. High Participation Rates

"The first step in saving for retirement is participating in an employer’s retirement plan. We have seen participation rates climb to over 97% in this year’s list."

6. Salary Deferral

"Plans within the Top 30 list average over $14,100  in salary deferrals per participant.  Companies can incentivize their employees to save in a number of ways."

The top four plans in the BrightScope survey were offered by major airlines: Delta, American, United and Southwest. Other top-rated plans offered by large employers included Novartis, UPS, Chevron and Amgen.

How does your plan compare? Keep in mind that any plan can be improved. You just have to ask.

You can, of course, approach your plan administrator and ask them how they can enhance your plan. Start with showing them the BrightScope list. Then lobby for upgrades.

Employers can always go out to bid for lower-cost fund managers and add savings incentives to your plan. Boosting company contribution matches should be on the top of their list.

Although employers don't have to do a thing—401(k)s are strictly voluntary—if they realize that they, too, can benefit, it will make a difference for all employees.

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