Frequently Asked Questions (FAQ)

Data and Methodology

The BrightScope Rating TM is a quantitative 401k plan rating developed by BrightScope with the help of leading independent fiduciaries, finance professors and 401k experts. The BrightScope rating algorithm takes in 200+ unique data inputs per plan and calculates a single numerical score for every 401k plan in the country. The algorithm runs thousands of simulations for each plan in order to determine how quickly each 401k plan will get the average 401k participant to retirement. BrightScope believes that this rigorous approach is necessary to ensure that every factor that affects retirement outcomes — company contributions, fees, vesting schedules, eligibility periods etc. — is accurately reflected in a company’s rating. The BrightScope Rating TM is designed to assist industry participants in determining the relative quality of a company’s 401k plan when compared to a unique peer group of companies with employees of a similar demographic makeup. We believe that industry adoption of the BrightScope Rating TM will ultimately lead to more cost-effective plans, increased participation rates, higher employee satisfaction, and better outcomes for employees who depend on their 401k plan for retirement.

No. The BrightScope rating is 100% quantitative.

The best way to understand the delay in retirement age calculation is to understand the BrightScope Rating TM calculation. First, BrightScope defines the characteristics of the average participant (AP) in a 401k plan. The AP is defined as a 44-year-old, gender-neutral individual, earning an income of $44,000 a year, with a starting account balance of $40,000. This average is based on data gathered from the Employee Benefit Research Institute (EBRI). These four factors — age, gender, income and starting account balance — are held constant across all plans. The other factors that affect retirement security — company contributions, fees, vesting schedules, eligibility periods etc. — are unique to each plan and form the basis of the comparative value of the rating. The next step in the BrightScope Rating TM calculation is determining the amount of money the AP needs to retire at any given age. BrightScope calculates this actuarial retirement value for every age of the AP’s life. The resulting sequence of values is called the retirement goal line. The third step in the process is to calculate how quickly each individual 401k plan gets the AP to retirement. In order to accomplish this, BrightScope runs thousands of simulations per plan of the account value growth of the AP. For each simulation BrightScope notes the age at which the account value exceeds the retirement goal line value, which we call the retirement age. Finally, BrightScope takes the median retirement age from the thousands of simulations and converts this age into the BrightScope Rating TM. Lower retirement ages receive higher scores and higher retirement ages receive lower scores on the 1-100 scale. Because BrightScope has a median retirement age for every plan we can simply subtract the delay in retirement age from one company versus the top company in its peer group. The delay in retirement calculations apply solely to a single defined contribution plan and do not take into account other retirement plans and programs offered by the employer.

In order to compare 401k plans, BrightScope constructs a unique peer group for every single plan. BrightScope’s peer group algorithm takes into account the number of participants in the plan, the level of assets in the plan, and the industry of the plan sponsor. By controlling for these factors, BrightScope makes sure that plan design and performance comparisons are appropriate and relevant.

BrightScope obtains some of its data from public sources such as the Department of Labor, the Securities and Exchange Commission, the U.S. Census Bureau, the Equal Employment Opportunity Commission, and the Bureau of Labor Statistics. Mutual fund asset allocation and fee data are obtained from mutual fund prospectuses, statements of additional information (SAI) and Form N-SAR. Mutual fund return history data is obtained from Lipper. Data on 401k fees comes from company filings, and directly from plan sponsors who work with us to improve their plan. While all participant-level data is protected and confidential, we aggregate data across comparable companies to construct relevant benchmarks for fees, plan design and plan performance. BrightScope believes it possesses the most comprehensive database of 401k information in the country. The company leverages this database to provide plan sponsors, advisors and participants with accurate and high quality data to help them make more informed decisions.

Most 401k fees are netted against fund returns. What that means is that the investment return is reduced by the amount of the fee or cost. Thus, the gross return and the total economic impact to you of fees and costs are hidden. There are legislative and regulatory initiatives underway that would mandate full disclosure of all economic costs to your retirement plan account. Some combination of new legislation or enhanced regulatory disclosure requirements will likely resolve the lack of clarity surrounding 401k plans generally. Based on BrightScope data, the average 401k total plan cost can be as low as 0.20% for the largest plans and as high as 5% for smaller plans. Total Plan Cost is highly dependent upon the size of the plan, the average account balance of the plan and the type of provider used (bank, mutual fund company, insurance company etc.) Total plan cost includes asset-based investment management fees, asset-based administrative and advice fees, and administration, and other fees (including insurance charges). The conventional 401k statement does not itemize these fees, but simply shows reduced net returns so your account reconciles on your statement.

BrightScope uses information that is as up to date as possible, given all of our data sources and our judgment as to whether the data is reasonably likely to remain informative up to the present. BrightScope places a timestamp on all of our data in the ? links on the company ratings page. The oldest information currently used was accurate as of year-end 2006. BrightScope is working proactively with recordkeepers, providers, the Department of Labor and other government agencies to speed up access to data.

The BrightScope Rating TM Engine is a nondeterministic system that runs thousands of simulations of future returns 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.

BrightScope has developed a rigorous process to ensure that all data received from plan sponsors and other non-government sources is accurate. The first step in this process is a complete analysis by BrightScope’s research team. Each form that BrightScope requests has its own checklist to verify that the form is current and has not been tampered with. Next BrightScope double-checks a company’s current Form 5500 and Audit Report against previous years. Because the Form 5500 and Audit Report contain beginning-of-year as well as end-of-year data, BrightScope can ensure that all data contained on the new form matches up with data contained on a previous form. Finally, BrightScope runs all of its data through a series of tests that determine the reasonableness of data. If there is a dramatic year-over-year reduction in fees or increase in assets, our algorithms flag the plan for closer review. BrightScope will contact a company’s HR and/or management team to resolve any data problems that it believes inhibit it from providing a rating. Currently roughly 10% of all plans have data problems waiting to be resolved. Only after data passes through all of these tests will it be relied upon to calculate a rating. In addition, as noted in our Research and Analytics Objectivity Policy. BrightScope keeps documentation of all data relied upon to construct a rating. If a plan sponsor believes that there are inaccuracies in the data BrightScope relies upon to calculate ratings, we encourage that plan sponsor to contact BrightScope immediately.

There are many reasons why a company may sponsor multiple 401k plans. Sometimes a company is seeking to provide different levels of benefits for different classes of employees. Multiple plans can also result from a recently completed merger or acquisition. In the second scenario, the 401k plan for the company merging into the parent company may be frozen, cancelled, merged into the parent company’s plan, or remain an independent plan indefinitely. In order to make sure you are looking at the correct score for your plan make sure the plan name listed on the BrightScope website matches the plan name in the documents you receive from your employer.

The plan details are provided in the sidebar of every ratings page. They include broad information about the plan sponsor, including address and industry, as well as some important plan details like the administrator who serves as the named fiduciary of the plan, the net assets of the plan, the number of participants in the plan and the average account balance of the plan’s participants.

BrightScope pulls the name of each investment option within a plan from the company’s summary plan description, Form 5500 Audit Report or other document provided by the plan sponsor or recordkeeper. Unfortunately many investment options have multiple names, or names that vary across the participant website, the enrollment documents, the summary plan description and the Form 5500 Audit Report. In these situations BrightScope strives to include the most recognizable name in the list of the top three investments.

If a plan sponsor or advisor disagrees with the data on its ratings page and would like to verify the data or provide BrightScope with updated data, we encourage the interested party to contact BrightScope directly through the contact us page. Named administrators of the plan and the advisors they designate can be given access to all of the source data BrightScope uses to rate a plan. If changes are requested to the source data the user must upload documents confirming the change before the change would be reflected in BrightScope’s system. After receiving new data, BrightScope will update the company page or request additional confirming data from the user within 7-10 business days. Alternatively the interested party can contact BrightScope directly at info@brightscope.com.

BrightScope rates defined contribution plans of all sizes. In order to have the greatest impact on the marketplace BrightScope started by rating the largest plans in the country. However, increasingly BrightScope is rating plans that are under $10 million in assets. It is BrightScope’s goal to ultimately rate every defined contribution plan in the country.

Administrative costs are the non-investment costs incurred to operate a defined contribution plan. These costs include plan setup and conversion costs, recordkeeping, trustee services, compliance and audit expenses, employee communication expenses and numerous other charges. In order to compute plan-level administrative costs, BrightScope utilizes the most recent administrative cost data from Schedule C and Schedule H of the plan’s most recent Form 5500 filing. Companies typically do not disclose a plan’s asset-based administrative fees on the Form 5500. BrightScope uses algorithms to detect or estimate asset-based administrative costs and revenue-sharing from the plan’s investment options.

In order to determine the explicit costs of the investment options in a defined contribution plan, BrightScope relies upon multiple sources. For mutual funds, the expense ratio and other explicit costs can be obtained from the mutual fund prospectuses and from several other publicly available sources. BrightScope then double-checks this data against the data we obtain from Lipper, an aggregator of mutual fund data and information. For common/collective trusts, pooled separate accounts, or other funds not subject to disclosure rules under the Investment Company Act of 1940, BrightScope relies on data it receives directly from third party data providers, plan sponsors, plan providers, and, in some cases plan participants to whom these explicit costs are required to be disclosed. Once the explicit investment cost data for all fund options has been gathered and verified, BrightScope multiplies each explicit cost by the assets in that option and expresses the total explicit costs as a percentage of the total assets of the plan.

BrightScope has working relationships with many of the largest trading platforms and custodians. These firms provide BrightScope with their full fund lists, including fund-level revenue-sharing information: 12b-1 fees, sub-TA fees and finder’s fees. Currently these fees are not required to be disclosed to 401k participants. BrightScope utilizes this database of revenue-sharing information by mapping each 401k plan to its recordkeeper/custodian in order to ensure that our revenue sharing information on each plan is accurate. In the Plan Dashboard, BrightScope performs a full expense ratio breakdown, which separates out a fund’s management fee, 12b-1 fees, sub-TA fees, acquired fund fees and other asset-based fund expenses included in the fund. BrightScope is working closely with Congress and the Department of Labor to ensure that the new fee disclosure requirement adequately discloses all revenue-sharing payments.

Yes, BrightScope rates 403(b) plans due to the recent availability of public data.

No. The Plan Component Ratings are calculated separately from the BrightScope Rating and do not sum up in any way — linearly or otherwise — to the BrightScope Rating. The BrightScope Rating measures the ability of your plan to get the average 401k participant to retirement and is calculated by running thousands of simulations on the plan. The Plan Component Ratings provide an easy-to-understand analysis of the health and performance of a 401k plan independent of its BrightScope Rating.

Companies can view the detailed underlying data and calculations of the components through a subscription to the BrightScope Plan Dashboard. Please email us at dashboard@brightscope.com if you would like to be contacted about the Plan Dashboard.

Yes. Within every company there are individuals who are fiduciaries to the plan. Fiduciaries have important responsibilities and are required to act solely in the interest of plan participants and their beneficiaries. Their responsibilities include:

• Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
• Carrying out their duties prudently
• Following the plan documents (unless inconsistent with ERISA)
• Diversifying plan investments
• Paying only reasonable plan expenses

When fiduciaries for a company plan are introduced to their BrightScope Rating and the 6 plan component ratings, they are given an enhanced perspective of how their plan stacks up to other plans in the marketplace. Oftentimes access to this level of comparison data is enough to cause a plan fiduciary to make a change to improve the plan.

The best way to benchmark your plan is to subscribe to the Plan Dashboard. To learn more about the dashboard please navigate to your plan’s BrightScope Rating Page and click on the Plan Dashboard link. From there you can request access to your Dashboard at which point a BrightScope representative will contact you.

As a plan participant the best way to improve your plan is to ensure the individual at your company who is in charge of Compensation & Benefits is aware of www.BrightScope.com.

As a plan participant in an ERISA-covered plan, you are entitled to the following rights and protections:

• To examine, without charge, at the plan administrator’s office, all documents governing the plan, including a copy of the latest annual report (Form 5500 Series) filed by the plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.
• To obtain, upon written request to the plan administrator, copies of documents governing the operation of the plan, including copies of the latest annual report (Form 5500 Series) and updated summary plan descriptions. The plan administrator may make a reasonable charge for the copies.
• To receive a summary of the plan’s annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report.

In addition to creating rights for plan participants, ERISA imposes duties on the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, called fiduciaries of the plan, have a duty to do so prudently and in the interest of you and other plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA.

If your claim for a benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce these rights. For instance, if you request materials from the plan (such as a copy of plan documents or the latest annual report) and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the plan administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent for reasons beyond the control of the plan administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court.

Often times the only issue keeping BrightScope from rating a 401k plan is the lack of adequate data.

BrightScope requests users follow two basic guidelines: (1) make sure documents do not contain any personally identifiable or private data such as social security numbers or account balances, and (2) make sure the documents are not under a court protective order or marked company confidential. If you have any questions about these guidelines please contact BrightScope at data@brightscope.com. All of the documents that BrightScope collects on its site from participants must be legally allowed to be shared with BrightScope.

No. Once you are 50, you can set aside additional money in your plan through catch-up 401k contributions. In addition, lowering the fees in a plan can have a major effect on the future balance. By decreasing the fees in your plan by 2% (by lowering Total Plan Cost from 3% to 1%) your balance can be 32% larger at age 65. Saving more and lowering costs are just two ways that you can dramatically improve your retirement even if you are over 50.

In general BrightScope looks at the type of plan, the amount of assets in the plan and the number of participants in the plan, although other factors are also considered. To learn more please read our Research and Analytics Objectivity Policy.

After all necessary data has been obtained and verified a full rating can usually be calculated and placed on the website within 15 business days. However, there are several complexities that can significantly delay the rating appearing on the site. If we encounter a complexity we will reach out to you to inform you of the delay.

In general BrightScope does not require users to be registered in order to view company ratings. However, several of the social features of the site require the user to be logged in.

BrightScope makes money by providing subscription-based analytics, benchmarking software and tools to plan sponsors, advisors and providers. BrightScope is the only retirement plan analytics company that is truly independent and does not accept compensation in the form of revenue sharing from mutual fund companies or plan providers. BrightScope is aligned with plan sponsors and seeks to avoid conflicts that will jeopardize its ability to give its clients unbiased advice.

The Plan Dashboard provides insights and analysis that go far beyond the information available for free on the BrightScope Rating page. The Dashboard enables a plan sponsor, advisor or consultant to evaluate their plan against real data from real plans, view underlying BrightScope data and calculations, and do a thorough fee analysis that benchmarks each fee the company is paying. The Dashboard compares the company’s plan to other real companies of similar size and allows plan sponsors to build custom peer groups of companies they would like to benchmark against. Perhaps most importantly Dashboard users can create custom reports for quarterly or annual meetings. There is no limit on the number of reports that can be created and the data will always be up-to-date and accurate. Put simply, the Plan Management Dashboard gives plan sponsors the data required to properly discharge their fiduciary duties. No other analytics company can offer the breadth of comparison or the quality of benchmarking of the Plan Management Dashboard.

Contact BrightScope through Dashboard@BrightScope.com

• Risk Assessment & Fiduciary Prudence: The BrightScope Rating was designed in conjunction with some of the country’s top independent fiduciaries, finance professors, and 401k experts. The rating uses fiduciary principles to rate the quality of a plan, such that an improvement in a plan’s rating will result in better retirement outcomes for participants and reduced fiduciary liability.
• Benchmarking & Recruiting: The BrightScope Rating gives companies a better way to understand the quality of their plan. The rating is designed to assist industry participants in determining the relative quality of a company’s 401k plan when compared to a unique peer group with similar demographic characteristics.
• Public Recognition: BrightScope publicly recognizes those HR professionals who have done an outstanding job managing their plan and gives the top-rated plans in each industry a BrightScope seal to showcase their success. An employer can use this positive recognition to attract and retain employees who are concerned with the quality of the retirement plan options offered at competing companies.
• Negotiating Leverage & Fee Transparency: BrightScope gives fiduciaries the leverage they need to negotiate the best deals with their service providers. Fees are a hot topic right now, as more and more companies face ERISA lawsuits due to negligence on fees. BrightScope enables companies to compare their total plan cost to the costs of other companies in their peer group, so that they always know whether the fees the plan is paying are reasonable for a plan of their size. BrightScope enables companies to compare the disclosed fees as well as understand and evaluate whether or not the plan may have hidden fees.

The major components of the rating report are:

1. Total Plan Cost Data and Analytics
2. Company Generosity Data and Analytics
3. Investment Menu Data and Analytics
4. Participation Rate Data and Analytics
5. Salary Deferrals Data and Analytics
6. Account Balances Data and Analytics

BrightScope’s mission is to increase the retirement security of America’s workforce. Oftentimes the best way to improve a market is to provide increased transparency. Therefore, with all deliberate speed BrightScope will make available any information it deems constructive to that goal. However, BrightScope must balance the need for transparency with the need for individual privacy. Oftentimes BrightScope will aggregate data it obtains and show averages rather than show the individual data points. At no time will BrightScope ever release any personally identifiable, non-public information or information subject to a protective order.

Either. Because the benefits of the Plan Dashboard accrue primarily to participants it is fair to have either the company or the plan pay for the report. Please discuss this option with your legal counsel before making a decision. BrightScope is not a law firm and does not provide legal advice. However, a BrightScope representative can share information about how our other clients pay for the Dashboard.

Possibly. Please contact BrightScope through info@BrightScope.com

Not directly. While the BrightScope Plan Dashboard includes extensive benchmarking information highlighting the elements of your current plan that are competitive and those that are in need of improvement, BrightScope does not offer consulting or advice to plan sponsors, advisors or participants. We encourage plan sponsors to contact an independent fiduciary or other fiduciary advisor for actionable advice about how to set up the right plan.