Novarica Blog

Changes will impact plan participants, sponsors, advisors and product manufacturers, resulting in an industry-wide reshuffling.

Register for Webinar on Feb 17 at 2 pm ET.

January 28, 2010 (New York) – According to a new report from research and advisory firm Novarica (www.novarica.com) , a new development in the 401(k) space may put trillions of dollars into play for advisors and plan manufacturers, while also exposing legal and fiduciary liability for plan sponsors. Due to the new BrightScope.com web site and database, the lack of transparency that has always pervaded the 401(k) industry is rapidly becoming a relic of the past.

Americans are relying more and more on their 401(k) plans for funding their future retirements. Bad or expensive plans are costing American workers too much in terms of delayed retirements and lower plan balances. BrightScope has developed a database and rating engine to score and benchmark plans, and provides detailed data that explicitly tells employees, sponsors, advisors and plan manufacturers just where their current plans fall short.

• According to the report, the roll out of BrightScope will result in:
• Sponsors moving to purchase more cost-effective and attractive plans to meet their fiduciary duty to plan participants.
• Participants gaining better investment and retirement outcomes from their 401(k) plans as they pressure sponsors to provide benefits and utilize lower-cost plans similar to others among their peer group firms.
• Advisors will be able to sell more-competitively based on the transparency of plan data showing the current costs of both the overall plan and the underlying investment choices.
• Manufacturers will be forced to develop lower-cost plans to reflect a more transparent and competitive marketplace. Due to the BrightScope solution, plan and investment option costs are projected to rapidly decline in the 401(k) industry.

Novarica believes that the BrightScope ratings will eventually have a similar impact to the Morningstar ratings on mutual funds, identifying future winners and losers in the 401(k) industry.

“America is looking to defined contribution plans, such as 401(k)s, to replace the defined benefit pension plans, and to take the stress off Social Security,” states Robert J. Ellis, Principal and head of Wealth Management at Novarica, and lead author of the report. “The problem was that, for most of the industry participants, the lack of transparency meant that plans were more expensive than they needed to be. Especially bloated were the fees charged on the underlying investments. BrightScope.com, combined with new Federal regulations, will change all that for the betterment of American workers’ retirement outlooks, but current providers will need to adjust to a radically altered marketplace.”
The 14-page report is available from Novarica at http://www.novarica.com/report_brightscope_401k.shtml . Mr. Ellis will also be hosting a webinar discussing the report on February 17 at 2 PM Eastern. Interested attendees may register online at https://www1.gotomeeting.com/register/760027265 .