Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By Cyril Tuohy
A widely followed survey of corporate defined contribution plans with more than $1 billion in assets finds that oil and gas companies had the most generous 401(k)s in 2013, according to BrightScope.
This year’s list of the top 30 corporate 401(k) plans is filled with the usual suspects: Google’s 401(k) Savings Plan, ExxonMobil’s Savings Plan, IBM’s 401(k) Plus Plan, Delta Pilots’ Defined Contribution Plan and UBS’ Savings and Investment Plan.
But it’s the petroleum industry that has the most companies on the list this year: Energy Future Holdings (EFH), ExxonMobil, Chevron, Saudi Arabian Oil Co., Anadarko, BP, Shell Provident Fund and Marathon Oil.
By contrast, defined contributions sponsored by the restaurant, hospitality, transportation, media and health care industries are nowhere to be found, BrightScope’s fifth annual survey of the largest 401(k) plans also revealed.
Mike Alfred, chief executive officer and cofounder of BrightScope, which compiles the data from public filings, said in a news release that the “elite 401(k) plans” are on the list as they are the plans mostly likely to deliver “a secure and dignified retirement” to their participants.
That’s not to say that other retirement plans offered by top-tier companies won’t deliver comfortable retirements for their workers and managers. Many companies offer generous compensation benefits in other ways than through a sterling 401(k) plan, Alfred said.
Savings plans for Apple, Boeing, Ford Motor Co., General Mills and Goldman Sachs Group failed to make the list, for example, but that doesn’t mean that these companies’ employees won’t be well cared for in retirement.
In an interview on Fox Business News last month, Alfred said making the list depends partly on how easy it is to join a plan, how generous the plan is and how transparent the plans are about charges and fees.
Deferral percentages, automatic enrollment, periodic increases, the size of the company match and the length of vesting policies play a role in the quality of a defined contribution plan. In all, more than 200 data points are included in the analysis and assigned a value by the BrightScope algorithm, he said.
Target date and index funds made inroads into corporate defined contribution plans, the BrightScope survey also found.
Top-30 plans held 5.4 percent of assets in target date funds, up from 4.9 percent in 2012, the research found. Index funds accounted for 33 percent of assets in the top plans last year, up slightly compared to 2012.
Plans averaged more than $12,500 in annual salary deferrals per participant, down 1.5 percent from an average of $12,700 per participant in 2012, the survey found.
Financial advisor Eve L. Kaplan, principal of Kaplan Financial Advisors in Berkeley Heights, N.J., said in an interview with InsuranceNewsNet that there has been “downward pressure” on fees and costs in 401(k) plans.
“The better plans have lower fees,” she said. “I’m not seeing too much in the form of index funds, but certainly the better 401(k) plans have index offerings.”
Index funds, which track a broad index of securities, are more efficient than actively managed funds. Index funds typically charge a fraction of a percentage point – often 0.1 percent – compared to the 1 or 2 percent a year charged by actively managed funds.
The lower the costs, the more money ends up with plan participants, in theory. Fee disclosures for 401(k) plans began in 2012.
Kaplan, a fee-only advisor and financial planner, said that target date funds were showing up more frequently in 401(k) plans, “but the quality varies.”
“I’ve seen a number of target date funds that were pretty expensive, with fees of close to 1 percent or even more than 1 percent,” she said. “But the general direction is lower fees and lower costs. The highly ranked 401(k) plans are going to have lower fees.”
Noteworthy findings this year included the appearance of the NFL Players Second Career Savings Plan, which received the highest score. The NFL savings plan was included because of “significant” additions to the plan after a 2011 labor dispute between NFL owners and players, BrightScope said.
The Saudi Arabian Oil Co. held the No. 2 spot for the third year in a row, BrightScope also said.
Newcomers to the Top 30 list include the United Airlines Pilot Directed Account Plan, Novartis Investment Savings Plan, AstraZeneca Savings and Security Plan, Federal Home Loan Mortgage Corp. Thrift/401(k) Savings Plan, Delta Pilots Defined Contribution Plan, EFH Thrift Plan and Caterpillar 401(k) Savings Plan.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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