Announcing the BrightScope Rating Engine ™

I've recently had a chance to get to know Mike and Ryan Alfred, the founders of Brightscope which is an independent data analytics firm that quantitatively rates 401(k) plans.  Always on the lookout for other like-minded folks who are passionate about transforming the 401(k) industry and bringing more transparency to the system, I've found their approach to be both refreshing and progressive.

BrightScope has created a pretty cool online 401(k) rating system called the BrightScope Rating EngineTM that has been in beta for some time.  BrightScope is officially announcing the availability of the rating engine today at the 2009 Los Angeles Benefits Conference.

I originally learned of BrightScope through my friend and colleague Matt Hutcheson who provided input to the BrightScope team during the development phase.  BrightScope allowed me to review and test the system during the beta period and I've been impressed by what I've seen so far. 

Using a proprietary algorithm, the BrightScope Rating Engine reviews 200 unique public and private data inputs per plan and calculates a single numerical score (i.e. BrightScope rating) to assess the quality of a company's 401(k) plan.  BrightScope looks at things like company generosity, fees, investment menu quality and vesting schedules to determine each company’s rating.  The rating can then be compared to other groups of 401(k) plans of roughly the same size and industry (i.e. peer groups.)  Using peer groups ensures that similar size and industry rating criteria are applied to each plan and provides for a more meaningful comparison.

BrightScope has already reviewed several hundred plans and has a lofty goal of having 90% of the nation’s 401(k) plans rated by end of 2009.  There is no charge for employees or employers to review their 401(k) plan rating and BrightScope users can also submit detailed information about their 401(k) plan to refine and improve the plan rating over time. 

As the BrightScope Rating Engine continues to evolve, I think it can be a useful resource for employers and employees who want to assess the overall quality of their 401(k) plan.  Given time, I think it could also be a helpful tool to retirement plan professionals as well.

Good luck to the BrightScope team! Learn more at www.brightscope.com or visit their blog at blog.brightscope.com.