401(k) ratings: Caveat lector
While I have been publishing research for many years, I consider myself new to the blogosphere. So I was a little surprised when my recent post on a new 401(k) rating service, Brightscope, elicited some response, including a critique from founders of the company. Frankly, I don’t think anyone has ever created an “open letter” to me before now. But I was glad to get a conversation started.
I stand by my original post. Any system designed to rate a complicated product, like a 401(k) plan, is bound to have some holes, especially when it relies on incomplete public data. Certainly, I encourage anyone with questions about a particular 401(k) plan to fiddle around with Brightscope’s service and see what they come up with. In my own small tests, I found a hospital company and online brokerage in the same peer group; in another peer group, a carpenters’ union and a boutique money manager.
The lesson is clear: It’s not just enough to process data and come up with a rating. Data can be dirty and often needs lots of scrubbing. And that presumes you have all the data you need.
In this age of information and social media, there will be opinions and ratings and an avalanche of information on all things in life—including your 401(k). How does the average web user make sense of it? By relying on the old Latin proverb: Caveat lector.
Let the reader beware.
Note: The links to Brightscope.com will open new browser windows. Vanguard accepts no responsibility for content on third-party websites.
Steve, I have to agree with you on Brightscope. I checked out my company’s peers (I work for a Food Manufacturing Company) and it listed our peers as Engineering and Construction companies. It also listed our investment participation as below average, but we have a high number of hourly workers who might not participate. I think that they need to get their data more accurate before they can refute your point of view. Keep up the good work and the posts.
I also have tried Brightscope and found it wanting. Either the data was too incomplete for them to provide a rating, or my old SAIC 401(k) — which happens to be managed by Vanguard — was rated lower than I expected. Until they improve their service, I don’t expect I’ll return to their website.
The other thing: obtaining a rating from Brightscope is more gee-whiz than anything, isn’t it? It’s not like an average employee will be able to convince HR to switch investment management companies for the corporate 401(k), no matter what the data might say.
For what it’s worth, I find nothing for the 401K plan for any part of Colorado state government, which just happens to be the single largest employer in Colorado. Don’t know but suspect that holds true in most other states. I doubt that Hewitt or Mercer or Mountain States Employer’s Council, all of whom research and sell data on this subject, are losing much sleep over the prospect of competing with these guys.