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Bright(Scope) Idea: Firm Launches Site to Compare 401(k)s

Consumers in the market to buy cars, computers or practically anything can turn to a plethora of resources to find the best deal.

But when it comes to 401(k) plans, workplace retirement savings plans for employees that have supplanted pensions, there’s a noticeable gap.

That is until last month’s launch of BrightScope, which has created an online rating system that lets users see how their 401(k) plan stacks up against plans at similarly sized companies.

Mike Alfred, who founded the firm with his brother Ryan and Dan Weeks, a former engineering manager with Hewlett-Packard Development, says their goal is to increase transparency so employers and employees can better understand them so they can improve their performances.

“Increased transparency ultimately creates an environment to have the plans restructured so that fees can come down and the quality of the plans goes up,” said Alfred, the firm’s co-CEO with Ryan.

A year in the making, the startup launched its rating engine last month at a time when many retirees and workers are looking at the significant losses in their savings caused by turmoil in the stock markets.


200 Components

The engine collects data on each 401(k) plan using 200 components, from private and public sources. Using the data, the site displays a numerical score, along with scores of similar companies.

In a news release, BrightScope rated five companies’ 401(k) plans among the best in the nation: Avis Budget Group, Bank of New York Mellon, Nucor, Southwest Airlines, and Saudi Arabian Oil. BrightScope has rated 1,000 businesses.

Key data points include a comparative analysis of fees and employer matching, plus the quality and scope of investment choices and vesting schedules.

The engine underscores the importance of fees charged as a factor in whether workers have a good or bad plan, Mike Alfred says.

All plans charge fees, which can range from less than 1 percent to more than 4 percent. Fees can also be hidden, and detract from performance, Alfred says.

“If you’re investing in a 401(k) plan where the fees are 4 percent, you’re going to get crushed over a 40-year period to the tune of hundreds of thousands of dollars irrespective of a fund’s performance,” he said.

BrightScope’s engine, available at brightscope.com, has already led to at least one company changing its plan, Alfred says.

When the firm’s chief financial officer saw the excessive fees charged by his plan’s only foreign stock mutual fund, he requested changes in the plan.

Selecting a 401(k) plan is usually left to inexperienced personnel directors. The assumption is that an employee simply has a 401(k) plan, and that’s the end of it, Weeks says.


New Focus

Weeks, BrightScope’s president, says he got the idea for evaluating 401(k) plans while working at HP.

The Alfreds, partners in the La Jolla investment firm Alfred Capital Management, saw the potential immediately.

The three had a good grasp of what they were trying to build, and the acumen to solve complex issues, says Yannis Papakonstantinous, a professor of computer science at UC San Diego who is on the firm’s advisory team.

The partners approached investors for funds to refine the software. They raised $900,000 from seven angel investors, including John Sarkisian, former CEO of the Pat & Oscar’s restaurant chain.

While BrightScope’s rating engine is free at its Web site, it sells detailed reports to plan providers and companies. Seven companies have signed up, and the startup should have 40 clients by March 31, says Mike Alfred.

He declined to reveal sales, but says his business, which has only six full-time employees, could break even by May.

Matthew D. Hutcheson, an independent trustee for the retirement plans of 30 companies with a value of $6 billion, was an early adviser.

He says he saw how effective the business could be in improving plan transparency.

“BrightScope doesn’t just shine a light on things. It says here’s the path, here’s where you should go.”

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