Whose 401k Plan Is Better -- Whole Foods, Chipotle, or Starbucks?

I serve on The Motley Fool's 401k committee and from time to time, I find myself looking at other retirement plans for ideas. At The Motley Fool our 401k plan is one of the most prized benefits we offer so we want to make sure employees are getting what they deserve. Surprisingly, some well-run businesses have put together some weak plans for their employees.

Here are three exceptional companies whose retirement plans might have you scratching your head.

Chipotle (NYSE: CMG  )

While Chipotle hopes everyone can enjoy a nice burrito, the eligibility requirements of the plan aren't so tasty. Salaried employees are eligible for the 401k after only a month of service while hourly employees need to wait a full year. According to their form 5500, participants are required to pick up the administrative expenses as well.

  • Brightscope rating: Only 46 out of a possible 100
  • Administrative fees of $134,000 out of $40 million of plan assets in 2012
  • To be eligible to participate in employee deferrals, an employee must attain 21 years of age as well as one month of service for salaried employees and one year of service for hourly employees. All employees must complete one year of service to become eligible for employer contributions.
  • The Company contributes 100% of the participant's elective deferrals up to 3% of compensation plus 50% of the amount of the participant's elective deferrals that exceed 3% of the participant's compensation but do not exceed 5% of the participant's compensation.
  • Each participant's account is credited with the participant's contribution, the Company's matching contribution, and allocations of the Company's discretionary contribution and Plan earnings, and charged with an allocation of administrative expenses.

Whole Foods (NASDAQ: WFM  )

Whole Foods is bringing healthy, organic foods to its customers and has proven to be a stand-up corporate citizen in the neighborhoods they operate. However, the Whole Foods retirement plan demonstrates that not everything is bigger in Texas. The grocery giant provides skimpy matches to employee contributions.

  • Brightscope rating: 50 out of a possible 100
  • They auto enroll employees at a contribution rate equal to 3% of their annual compensation.
  • In 2012, the Company made a matching contribution commitment to each eligible participant equal to 15.2% of the first $1,000 of employee contributions. Matching contributions can be made in either company stock or cash.
  • Administrative expenses were $2.5 million in 2012 and $2.5 million in 2011. It looks as if the plan expenses can be paid out of the plan or by the sponsor. So it looks like employees could be footing the bill for the plan costs.
  • The biggest allocation of plan assets is to Whole Foods stock at 16%. We love when employees are invested alongside investors, but we caution people from putting too many ostrich eggs into one basket. If things went poorly for the business it leaves you vulnerable to a lost paycheck and a hit to your retirement nest egg at the same time.
  • Certain Plan investments are shares of mutual funds managed by Fidelity. Fidelity is the custodian as defined by the Plan and, therefore, these investments qualify as party‐in‐interest transactions. This isn't uncommon in the 401K business but mutual funds provided by the plan sponsors aren't necessarily the best or least expensive choices for a plan.

Starbucks (NASDAQ: SBUX  )

We think Starbucks actually has a great plan and has been unfairly discounted for poor participation rates and smaller average balances than its peer group. The fact is that Starbucks has built an excellent plan, and now it's up to their employees to take advantage of it.

Brightscope rating: 53 out of a possible 100

  • All Starbucks partners on the United States payroll who are at least age 18 and have 90 days of service are eligible to participate in the Starbucks 401k Plan. We like that eligibility is even among salaried and hourly employees -- way to go Starbucks!
  • In 2011 and 2012 Starbucks offered the Enhanced Starbucks Match (100% of the first 6% of eligible pay contributed for both 2012 and 2011), which is very generous.
  • The company picks up almost all the fees associated with the plan.

Summing it up

Let me be clear hear by saying I respect all three of these companies immensely. But, if I had to choose just one to work for based on retirement benefits, I would choose Starbucks without hesitation.

In a competitive labor market, you want to make sure you're doing all you can to recruit the best and brightest. So keep it up the great work Starbucks! As for Whole Foods and Chipotle, come on now we know you can do better!

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