Do you know how much your 401(k) is costing you? Chances are the answer is no. Because a 401(k) does not send out a monthly or quarterly bill, it’s easy to forget about the fact that these retirement accounts can cost plenty. Most employers absorb some of these costs, but many of them are passed on to employees in the form of higher expense ratios for the mutual funds in the plan. While in the past it was difficult to get at this information, and almost impossible to compare 401(k) plans, there’s now a free tool that makes this a snap.
BrightScope.com, a refreshingly new website still in beta testing, evaluates your current 401(k) plan and compares it against other 401(k) plans provided by employers that are competitive with your own. As I don’t have a 401(k) retirement plan, a random search provided me the plan specifications for Geico Insurance. Immediately, I land on a page which tells me that had my 401(k) been optimized at its full potential, I could earn an additional $225,300! I’m also told right away that compared to other plans, Geico’s rates as slightly above average with a score of 63/100.
According to BrightScope, had I been a member of the best plan in my peer group (similar number of members, investment opportunities and industry) a score of 89/100 would be appropriate and I could have expected an additional hundreds of thousands in revenue in retirement. Knowing that a better plan exists does me little good to improve my current retirement situation, but BrightScope takes it a step further and gives all users a chance to improve their 401(k) plan. You’ll notice in the graphic above there is a little button underneath the amount of money lost in this plan entitled, “Help Improve This Plan.” If you click this button, you are taken to a page that gives you recommendations on how to get your employer to wise-up. You’re not going to find anything revolutionary in there, but you will find solid advice that can work.
You may be wondering how BrightScope.com calculates their data and where it all comes from. Everything they pull comes from public records and trusted sources within each company, and their numbers are calculated assuming identical information. All plans are assumed to have a participant who is 44 years of age, earns $44,000 in income each year and already has $40,000 invested in their 401(k) accounts. If you don’t find yourself in this exact situation, not to worry, your plan score will still work out roughly the same but the amount your 401(k) is losing you will vary.
If you decide to register with BrightScope (takes less than 30 seconds), you’re given extra information about your plan including a report on the fees you pay each year and possible alternatives. Sticking with Geico, I filled out a quick questionnaire about my currently fake 401(k) and was given the results below. It would appear that the fees for a Geico 401(k) plan are extremely reasonable and some of the lowest around. Man am I glad I chose Geico as my imaginary employer. 
While BrightScope.com has been around for two years, it is still relatively new and is constantly adding data to expand the list of 401(k) plans available for review. All of the services are currently free of charge, so there’s no reason not to compare your 401(k) plan vs. others. Don’t be shy to speak up if you find that your plan is under-performing, but make sure not to go overboard. Losing $225,000 is no laughing matter and opening a Traditional or Roth IRA is always an alternative to funding a 401(k). Having complete control over your retirement is excellent peace of mind and using BrightScope.com is a good start.
Michael Pruser
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Published or updated July 6, 2010.
{ 10 comments… read them below or add one }
Is there a way to see what investments options are available within a plan?
To Mario Brothers:
Yes, you can see what the investment options for each 401K are. In the first picture example above, you will notice a tab at the top of the page titled “Form 5500 Data”. When you select that tab you will be brought to a page where you can select another sub-tab, fittingly titled “Investments”.
Brightscope.com is an excellent site. In my blog I discuss my path to becoming totally debt free.
Thanks for sharing this website with your readers. I have long been bothered by (mostly hidden) 401k fees.
Very informative. I did not know such a tool existed. Many times a low cost index fund in your 401K is the way to go.
Most people have forgotten about their 401ks. They certainly aren’t tracking fees or hidden expenses. These new websites should be a great help to investors.
Making sure you don’t get charged excessive fees should be a priority for most folks. Unfortunately, the 401k statements are so tough to read how could you tell?
401k fees are often buried in the fine print. So take a close look at your statements. You might be surprised!
Most people don’t look through their statements, so they wouldn’t even know. Once you actually look close you can see the fees.
This is great info! I’ve had quite a few friends start dipping into their 401k’s after they’ve been laid off…NOT a good idea! I mean, if you absolutely HAVE to do it to survive it’s understandable, but incredibly risky. Save yourself from the fees and tax mess and avoid it at all costs!