Airline workers have the best 401(k) retirement plans, a new study claims, but that's little comfort to Capt. Mike Burr, a 60-year-old American Airlines pilot still on the job after years of contract concessions, pay cuts, a pension freeze and a 2011 bankruptcy filing.
Delta, American, United and Southwest airlines swept the top four spots on a new ranking of the Top 30 401(k) Plans by BrightScope. The list considered plans with more than $1 billion in assets and ranked them on generosity of company contributions, vesting schedules, fees and participation rates.
Airlines have bolstered their 401(k) plans to help soften the blow of pension freezes, but the list provides a good illustration for retirement savers about how individual outcomes can vary dramatically, even among participants in a great plan.
When Burr began his career 29 years ago after a stint in the U.S. Navy, pilots had a mandatory retirement age of 60. The mandatory age is now 65. Burr, a pilots' union official, says he'll need to work right to the end, and still won't have enough to generate the retirement income he expected for most of his career.
"The 401(k) plan looks lucrative, if you have 40 years to accumulate," Burr said. "I don't have time on my side."
To measure how your own plan stacks up, consider these numbers from BrightScope:
-- $15,000 – That's how much, on average, companies on the list paid out per retirement plan member in matching or profit sharing contributions.
-- 26 of the top 30 – That's how many of the companies on the list make new hires immediately eligible to participate in their retirement plans.
-- 29 of the top 30 – The number of companies that make their matching 401(k) contributions immediately vested, rather than using a vesting schedule to lure employees to stick around.
-- 0.22 percent – The total average annual cost of the best plans, compared to more than 1 percent of assets for the smallest plans in the BrightScope database.
Financial advisers say employers have made a lot of progress on lowering fees in recent years, though some say they still find odd plan design quirks that hurt savers.
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One client saves in a 401(k) that only matches funds invested on a pre-tax elective deferral basis, meaning employees saving in a Roth 401(k) miss out on the company match, said John Gugle, an adviser with Alpha Financial Advisors in Charlotte, North Carolina. Others fail to get the full company match because they accelerate their contributions early in the year.
"We advocate for our clients when we feel that their plan is sub-standard," he said in an email, though he noted that investment fees have been declining steadily and investment choices in plans have generally improved in recent years.
Other advisers say many plans still have a long way to go to be considered investor-friendly.
"Many participants in smaller plans are still stuck with high cost, commission-based products," Sean Condon, an adviser with Windgate Wealth Management in Chicago, said in an email.
Spurred by federal legislation aiming to cut expenses, that is changing, but some fear the rush to low-cost index mutual funds will subject older participants to more market volatility when they have little time to recover. Though studies have consistently shown index funds outperform actively managed funds over the long term, some advisers say near-retirees could pay the price for blind adherence to index funds.
"While many higher cost, actively managed funds have under-performed index funds during this bull market, we are seeing a return to volatility," said David Mullins, a financial adviser in Richlands, Virginia. "Actively managed funds typically earn their keep protecting on the down side."
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Janet Kidd Stewart writes The Journey for Tribune Content Agency. Share your journey to or through retirement or pose a question at email@example.com.
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