What You Can Learn From the Best 401(k) Plans of 2012

BrightScope, a provider of retirement plan ratings, recently announced its annual list of top 30 401(k) plans. Learning about the traits of the best plans sheds light on what makes a great 401(k). That way we can get a better idea of how our retirement plan stacks up.

Let's take a look at some characteristics of the top plans that propelled the highest ratings.

High employee participation
The most important step in saving for retirement is participating in your 401(k). Amazingly, the average participation rate for the 2012 Top 30 List plans is 95%. Better yet, five plans boast 100% participation this year, including those of ExxonMobil (XOM 0.28%), Amgen (AMGN 0.83%), and GlaxoSmithKline (GSK 1.40%). Every single employee of these companies is making retirement planning a true priority.

Plans within BrightScope's 2012 Top 30 List average over $12,700 in salary deferrals per worker. So for an employee pulling in an annual salary of $100,000, this equals almost a 13% salary deferral. By comparison, the average worker contributes less than half that percentage. A recent Wells Fargo Retirement Survey of 1,000 middle class American workers found that 34% are saving between 3% and 5% in their 401(k) plan, 32% are saving between 6% and 10%, and only 12% are saving more than 10%. 

Sizable employer contributions
A huge component of the Top Plans list is company contributions. The list's No. 1 plan, provided by Marathon Oil (MRO 0.49%), matches dollar-for-dollar up to 7% of salary contributed to the plan. Due to this generous match, Marathon Oil boasts an average company contribution of $23,000 per participant!  

By comparison, a typical employer matches dollar-for-dollar up to 3% of salary. Many participants take full advantage of their employers' match, but not everyone does. Seventy-two percent of 401(k) participants in 2009 contributed enough to maximize their employers' match.  Not contributing enough money to receive the full match is leaving cash on the table. 

Immediate vesting
While your 401(k) contributions are 100% yours from the get-go, contributions by your employer are not; they're often tied to an employer-selected vesting schedule. That means you're required to stay with your company for a certain number of years (sometimes up to six or seven) before the employer-granted funds are 100% yours.

Only two of the 30 plans on the list require six years of employment to become fully vested. Twenty-one of the Top 30 plans offer immediate vesting of employer contributions. This means more money in employee's accounts is theirs to keep from day one.

Low fees
Small improvements in plan fees can significantly alter 401(k) account balances. Among the 2012 Top 30 List plans, the average annual plan cost, which includes investment expense ratios and plan administrative fees, is 0.29%. By comparison, an Investment Company Institute studyfinds the average 401(k) plan costs 0.78% per year.   

GlaxoSmithKline boasts the lowest annual plan cost at an amazingly cheap 0.06%. The company actually pays for some plan expenses directly from its corporate coffers. But 401(k) plan participants -- not employers -- typically pay for most plan fees. 

What drives plan costs down are low-cost investment options, like index funds and target date funds. The percentage of index funds and target date funds increased this year over last for the 2012 Top 30 Plans. Index funds account for nearly 30% of assets in these plans. Target date funds, which provide instant asset allocation based on your projected retirement date, account for almost 5% of assets in these plans.

As a 401(k) owner, you should concern yourself with your plan's fees. Typically, fees are deducted from your fund assets, so you never see them in hard dollars. The lower the fees, the larger your 401(k) balance.

Foolish bottom line
Go to BrightScope's website and see how your 401(k) stacks up against the best. If you feel up to the task, advocate for a better plan: Politely ask your employer to consider improving your 401(k). Use this form letter to get the dialogue started.

Better yet, make a New Year's resolution to get your financial house in order. Ask your HR department for a copy of your Summary Plan Description, a written-in-plain-English document that provides you with the ins and outs of your 401(k) plan. Learn about your company match, profit sharing, plan fees, and much more. You'll be a better investor for it.