6 features of the best 401(k) plans

Each year Brightscope, an independent financial information company that aggregates retirement plan data, releases a list of what it believes are the best large 401(k) plans. Following are the six plan features that Brightscope says result in a 401(k) plan receiving a high ranking, along with my comments on each feature.

1. Generous company contributions. To help participants add the required 15% necessary to their accounts each year to achieve retirement readiness, many employers now match 100% of employee contributions up to 6%. Previously the standard match had been 50% of the first 6%.

2. Immediate plan eligibility. The best plans allow new hires to begin making employee 401(k) contributions on their hire date. There still may be waiting periods attached to receiving employer contributions; however, many employers are changing their 401(k) plans to allow new hires to begin making deferral contributions immediately.

3. Immediate vesting. Employee 401(k) contributions are always 100% immediately vested. However, employers may attach vesting schedules to any employer matching or profit sharing contributions. The best plans provide for immediate 100% vesting of all employer contributions as well.

4. Low fees. For large plans, Brightscope reports that average total cost has dropped to 0.28%. These are plans with billions of dollars in assets. Keep in mind that average cost varies significantly based on plan size. Depending upon the size of your plan, a market competitive average cost may be 1% or less.

5. High participation rates. Due to the increasing use of auto-enrollment features, the best 401(k) plans now have participation rates that reach 90% or more. If your plan suffers from low participation (less than 80%) consider implementing an auto-enrollment feature.

6. High rates of salary deferral. It is not only important that participants enter the plan, but they also need to contribute in a robust way. Brightscope reports that the average participant deferral of their best plans is around $12,500 annually.

None of these plan features are difficult to implement for a retirement plan of any size, which makes having a great 401(k) plan within the reach of almost any plan sponsor. How does your plan compare?

Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC (lawtonrpc.com), an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.