Monday, February 02, 2009

401(k) Tweets

A new 401(k) program ranking tool, Brightscope, is now available on line. According to the firms press release;
"The new BrightScope Rating is a quantitative 401k plan rating developed by BrightScope, Inc. in partnership with some of the country's top independent fiduciaries, finance professors, and 401k experts. BrightScope Ratings take into account over 200 unique data inputs per plan and calculate a single numerical score to define 401k plan quality at the company level. The ratings algorithm runs thousands of simulations for each 401k plan in order to determine how quickly each plan will propel the average 401k participant to retirement. Using this rigorous approach, BrightScope ensures that every factor that affects retirement outcomes - such as company generosity, fees, investment menu quality, vesting schedules, and more - is accurately reflected in a company's rating. The site provides open access to 401k ratings, allowing anyone to compare any 401k plan with another."
Proclaiming the value of true transparency and disciplined benchmarking, the firm indicates that;
"Plan sponsors who use BrightScope can demonstrate to their employees, their board, their retirement committee, and to regulators that they are taking the necessary steps to improve the quality of their 401k plan."
Unfortunately, transparency isnt very transparent when a proprietery and presumably undisclosed process generates rank results. Fiduciaries would not be wise to rely on a quantitative "black box", especially one designed by industry experts....because we have seen where that will lead. The quality and timeliness of plan data inputs have been a persistent problem in past plan comparability efforts. A database that relies on voluntary data of unknow quality or stale but offical public domain data shouldn't necessarily be relied upon for fiduciary decision making either.

Perhaps, when a comprehensive suite of federally mandated investment and plan disclosures becomes available on a close-to-real-time basis and its ranking criteria and standards are revealed, a tool like this will have real value. Until then it will be an interesting curiosity.

While their intentions may be good and the output is interesting, Brightscope seems to sacrifice meaningful detailed information and a transparent ranking process for mindless usability. That may be a wise tradeoff to capture the eyeballs of the twitter generation but probably won't support its goal of being a fundamental fiduciary support tool that plan sponsors could really use.

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