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How does your 401(k) stack up?

By Jennie L. Phipps · Bankrate.com
Tuesday, December 27, 2011
Posted: 4 pm ET

If you want a great retirement plan, become a Southwest Airlines pilot. It grabbed the top spot on the list of the 30 best 401(k) plans rated by BrightScope, a company that analyzes corporate retirement plans.

Companies were ranked by how quickly employees are able to save enough to retire. Retirement is defined as accumulating enough savings to stop working with a lifetime income that is equivalent to 75 percent of an employee's earnings during his working years.

Southwest matched 100 percent of the money its pilots saved in 2011, up to 9.3 percent of their income. The average company rated by BrightScope provided an average of $11,000 per plan participant in 2011, up from $8,000 in 2010. Companies were more generous this year because, beginning Jan. 1, they will be forced by the U.S. Department of Labor to make available to employees exactly what they are paying for their retirement plans, including administrative fees, as well as a separate listing of the costs of the underlying mutual funds, says Mike Alfred, co-founder and CEO of BrightScope. The upcoming transparency encouraged some companies to do better than they had done before, he believes.

Alfred also thinks that employees can do several things to improve their retirement planning:

  • Read the BrightScope rating. BrightScope rates about 50,000 plans. If yours isn't included, provide the information necessary for BrightScope to do so.
  • Study up on the cost of your plan. Ask your employer to make it more cost-effective.
  • Urge your employer to add coverage of every asset class, especially small caps and international funds.
  • If you don't have index funds available in your plan, push for the addition of those.

Alfred says most companies don't benefit directly from expensive plans, but company  executives often have allegiances that aren't exactly holy, including benefits like free box-seat tickets and trips to nice places courtesy of the plan providers. Next year's rules may make some of these disappear. "We know that if there is more transparency, that people can't get away with things that aren't beneficial to the employees," Alfred says.

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