Earlier this week the Wall Street Journal ran an article about the trend towards additional nutritional labeling in grocery stores and restaurants. According to the article, many grocery chains are adding their own health labels to supplement the labels that are found on the products themselves. As a consumer I think this trend is a good thing. While I don’t count every calorie, I do occasionally use labels to make buying decisions. All else being equal, the better the labels, the better the decisions I can make.
In the 401k market there is no functional equivalent to a standardized nutritional label. The average 401k participant doesn’t know how generous their company is with their match, how good the fund options are within their plan, or if their fees are high or low compared to other plans. In fact, if you ask the average American how much they are paying in fees within their 401k plan, over 80% will tell you they don’t know. Even worse, one in three will tell you they don’t think they are paying any fees.Â (Full Disclosure: I have yet to discover a free 401k plan.)
I believe that much needs to be done in order to get participants the information they need to make smart retirement decisions. One way BrightScope aims to help this disclosure process is by quantitatively rating the quality of 401k plans and showing 401k participants what this rating might mean to them in terms of delay in retirement age or loss of retirement assets:
We hope that this kind of “nutritional disclosure” helps plan sponsors and participants make better decisions with their retirement assets by focusing on improving those parts of their 401k plans that have the biggest effects on retirement outcomes.