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Southwest Soars in BrightScope Inc.'s 2011 List of Top 401(k) Plans

January 17, 2012

Pilots for Southwest Airlines are flying high with the nation's top 401(k) plan, according to BrightScope Inc.'s third annual year-end top 30 401(k) plans list for 2011.

Southwest received the highest plan rating of nearly 91 out of a possible 100 points and moved into the No. 1 slot from third place in 2010. According to data from BrightScope, a financial information company that tracks 401(k) plans, Southwest has 6,200 total participants who have an average account balance of $310,000.

Southwest barely edged out last year's top plan, the Savings Plan of Saudi Arabian Oil Co. in Houston, by a tenth of a percent. Southwest scored 90.83, while Saudi received 90.82. The average rating for the top 30 plans was 87.25.

"We watch expenses very closely and try to offer a variety of investments, but not so many that it confuses people," says John Nordin, chairman for Southwest Pilots' Retirement Savings Plan and a 29-year captain with the Dallas-based airline.

Companies on the list are continuing such trends as improving participation rates, increasing employer matches and lowering total plan costs, says Mike Alfred, BrightScope's co-founder and CEO. For employers, high participation translates into employee loyalty and high retention.

Seven new entrants made the list, bumping companies that had appeared on it since the list's inception in 2009.

IBM dropped 10 spots to No. 22. Alfred says the plan was identical to 2010 but was edged out by newcomers like Google Inc., which hadn't been considered in previous rankings because the search engine giant's plan hadn't yet reached $1 billion in assets.

"The list is getting more competitive," Alfred says. "It's not because some companies are doing something worse, it's because others are doing it better."

BrightScope, the San Diego-based company that has rated nearly 50,000 defined contribution plans covering 30 million workers with $2 trillion in assets, analyzed more than 200 data points for the 350 plans in BrightScope's universe with more than $1 billion in assets. Overall, the average rating of the top 30 increased more than 75 basis points from 2010.

Alfred says seven plans have a 99 percent participation rate; four have 100 percent participation, including ExxonMobil Savings Plan, which has 42,000 participants with $450,000 average account balances. Twenty-four of the top 30 offer immediate eligibility, and 25 have immediate vesting of company contributions.

And in the wake of the 2008 economic crisis, employers are offering more generous contributions. In 2011, companies in the top 30 contributed an average of $11,000 per participant, a 26 percent increase from $8,700 in 2010.

Most employees didn't increase what they put in these top tier retirement plans. In 2011, participants in the top 30 contributed an average of $11,600, a slight decrease from the $12,200 average in 2010.

Last year, Southwest increased its employer contribution and matched 100 percent of employee contributions, up to 9.3 percent of pay, up 1.5 percentage points from 2010. While the move didn't increase Southwest's 98 percent participation rate, it did move against the top 30 trend, with employee contributions climbing to 14.1 percent from 13.3 percent, Nordin says.

Southwest does not automatically enroll participants, so its strong communications campaign on the increased company contribution caused the bump in employee savings, Nordin says.

"We told [pilots] if they wanted the free money, we said over and over they had to put in somewhere around 10 percent," Nordin says.

Meanwhile, the average total plan cost—which includes an investment expense ratio and administrative, trading and transaction fees—dropped by 5 basis points to 0.61 percent, Alfred says.

This may be happening in response to a new U.S. Labor Department regulation that will require 401(k) plan service providers to disclose specific fee information this year. After plan sponsors get cost information from providers, they will be required to share it with plan participants.

"Companies are going through and looking at their fee structure, so when they communicate [fees], they are putting a polished product in front of participants," says David Wray, president of the Profit Sharing/401k Council of America.

According to the Profit Sharing Council's 54th annual survey, 21.3 percent of the 820 plans surveyed changed their investment lineup in 2010. By comparison, 19.7 of the 921 plans surveyed in 2009 changed their investment lineup.

Companies are also making plan investment changes because they have better evaluation tools, Alfred says. The Profit Sharing Council's survey showed that 53 percent of employers made changes to their plans based on monitoring participant behavior. The survey also reported that nearly 32 percent of plans were monitored quarterly in 2010; more than half of plan sponsors do this semiannually.

"The quality of defined contribution plans is improving dramatically because of access to information," Alfred says. "I think that this trend will continue to change. We may see a huge raft of changes in 2013 as a result of fee disclosure changes in 2012."

TECH TOOLS

Want to see how your company's defined contribution plan stacks up? Go to brightscope.com to research the quality of what you've got.

To take a look at who is on BrightScope's top 30 401(k) plans, follow this link. Or, go to BrightScope's blog.

Patty Kujawa is a freelance writer based in Milwaukee. To comment, email editors@workforce.com.