A 401(k) plan is a popular way to save for retirement, but each employer determines what they offer with their own plans. Different 401(k) plans may have different fees, corresponding contribution limits, and investment options.

To determine if your 401(k) is competitive, you can compare its terms and offers with other 401(k) terms. You can do this by using a website like BrightScope or Morningstar, which provide ratings for individual 401(k) plans, as well as specific investment choices.

In this article, we’ll show you how to compare your 401(k) with others and what factors you should consider when evaluating your plan.

Key points to remember

  • Bloomberg, BrightScope, and Morningstar have online tools that can help you compare your 401(k) with others.
  • Compare your plan’s fees, options, investment quality and employer match.
  • If your plan is more expensive or more limited than some others, check with your plan administrator.
  • If your administrator is unwilling to make your plan more competitive, consider diverting some of your retirement investments to other accounts.

How to Compare 401(k) Plans

You can compare your 401(k) plan with others at different levels. For a quick assessment, online tools such as one courtesy of Bloomberg will allow you to see how your plan compares to the average plan.

If you want to do a more in-depth comparison, you’ll need to collect key information about your plan. Your summary description of the plan (DOCUP) and the annual report (Form 5500) can provide key information. If you don’t receive this report automatically, you can request it from your company.

With this information, you can conduct a review of administrative costs, fund choices and expenses, and employer matching contributions. You’ll also discover additional features, such as the ability to make after-tax Roth contributions.

You can then compare these options and costs with other 401(k) plans offered in your area. Two main companies provide this information: BrightScope and the morning star. You can use either website to access fund information and view their rating.

When comparing your 401(k) with others, you need to look at four key benchmarks: matching contributions, fees, options, and investment quality. Here are these benchmarks in more detail.

Matching contributions

Not all employers offer matching contributions, but they can be an important benefit of your 401(k) plan. The average matching contribution limit is 4.5% of your salary and the median matching contribution limit is 4.0%, according to Vanguard research.

You should also look at the devolution timeline for any matching contribution. A vesting schedule indicates how long you will need to stay with the company before you are eligible for contributions.

Financial advisers recommend contributing up to the employer match to avoid leaving “free money on the table”. If your plan doesn’t offer the investment options you want, then you can invest money beyond your employer’s corresponding limit in another retirement plan, such as an Individual Retirement Account (IRA) .

Costs

Fees can vary widely across 401(k) plans and can impact how quickly you save for retirement. Even a difference of just 0.5% in plan fees can make a significant difference to the amount of money you save for retirement.

Plans can charge administrative fees in several ways, so it can be difficult to compare them. A good start, however, is to review your Form 5500. On this form, you may see your fees listed in dollars. You will need to divide this figure by the total plan assets to get your expense ratio.

The average 401(k) plan has a expense ratio of around 1%. BrightScope.com and the 401(k) Averages Book provide further comparative information on 401(k) plan expenses. If your plan is much more expensive than average, consider talking to your employer.

Choice

Another important aspect of your 401(k) plan is the choice it gives you. Employers choose which investments to offer in their 401(k) plans and they have a responsibility to offer “prudent” options to plan participants. Thus, they tend to limit your investment options.

However, you can expect some basic minimum options for your 401(k). You should have access to well-diversified US equity, foreign equity and core bond funds. A 401(k) should also offer a range of target date funds. Most employers don’t provide access to exotic, volatile investments for your 401(k), but it’s fair to expect a good mix of stock and bond funds.

Quality of investments

You should also assess the quality of the investments available to you. You can use Morningstar’s rating system to see if the funds you can buy for your 401(k) are of high quality, as indicated by the Gold Morningstar Analyst Rating.

If you find the funds expensive or have performed poorly, you can ask your 401(k) plan administrator if they are considering adding more options.

Where can I find data on 401(k) plans?

BrightScope and Morningstar have extensive databases of 401(k) funds and plans. You can also use the tools offered by Bloomberg, which will allow you to make a quick assessment of how your plan compares to the average.

What makes a good employer for a 401(k)?

The average employer match for 401(k) accounts was 4.5% in 2020 and the median was 4.0%, according to Vanguard research. Employer matches that are more than this, such as a 5% or 6% match, can be considered a “good” employer match.

What is the average 401(k) expense ratio?

Understand the expense ratio for your 401(k) plan can help you compare it with others. As of 2021, the average 401(k) plan has an expense ratio of around 1%. Plans with more participants tend to have lower fees, and vice versa.

The essential

Tools provided by Bloomberg, BrightScope, and Morningstar can help you compare your 401(k) with those offered by other companies in your industry. You should compare your plan in four main areas: matching contributions, fees, options and investment quality.

If you find that your plan is more expensive or more limited than some others, you can talk to your plan administrator. If they don’t want to make your plan more competitive, you can consider diverting some of your retirement investments to other instruments.

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