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Coincidence is not Correlation; Correlation is Not Causation

By Jack Towarnicky


  • Back in 1978, New York Times sportswriter Leonard Koppett reported that you could correctly predict stock market returns based on the Super Bowl winner.1
  • Once there are 23 people in a room, there is a 50/50 chance that two of them will share the same birthday.
  • Between 2000 and 2009, the divorce rate in Maine was very closely correlated with per capita consumption of margarine, and mozzarella consumption was very closely correlated with the number of civil engineering doctorates.2
  • T. Rowe Price asserts that the BrightScope RatingTM for a 401k plan is positively correlated with corporate profits: “… there’s a connection between better-designed and higher-quality 401(k) plans and a company’s bottom line.”3  

Really? Well, at least one of the above isn’t a coincidence. 

What is BrightScope?
BrightScope is a financial information and technology company that helps investors research retirement plans, financial advisors and mutual funds through web-based software and data.

OK, what does BrightScope rate? 
BrightScope says its rating creates a single, numerical score for a 401(k) plan based on more than 200 data inputs. BrightScope represents that the algorithm’s quantitative score is designed to measure a plan’s effectiveness at retirement preparation, including measures such company contributions, fees, vesting schedules, eligibility periods, and more. 

Is the BrightScope Rating a measure of retirement preparation? 
Maybe, maybe not. Perhaps it is if your only retirement-related benefit is a 401(k). But, the BrightScope Rating score is not an objective calculation; it is a relative score compared to a peer group selected by BrightScope.4

Does a BrightScope Rating truly correlate with corporate profits?
Maybe, maybe not. Employer financial support for the 401(k) usually averages less than 2 percent of total rewards expense.5 When my 401(k) added automatic features in 2007, participation from those eligible increased from 74 percent to more than 95 percent. Also, employer contributions increased by more than 20 percent, which would noticeably improve BrightScope scores but reduce corporate profits.

Let’s go back 10 years. Plan sponsors have seen this before. Consider the benefits consulting firm that confidently asserted that employers who sponsored innovative, “great” health and wellness or health and productivity (H&P) initiatives consistently achieved better profits. Here is an excerpt from their publication:

 “Companies with the most effective H&P programs experienced superior human capital and financial outcomes: 11% higher revenue per employee, lower medical trends by 1.2 %, 1.8 fewer days absent per employee and 28% higher shareholder returns. … Organizations with the most effective H&P programs had total returns to shareholders (TRS) over the past five years of 14.8%, compared with  low effectiveness companies, which reported a decline of 10.1%.   After adjusting total returns relative to their industry average, high-effectiveness companies performed 55.3 % better than their industry peers, compared with 21.1% for firms with low-effectiveness scores.” 

The criticism was – and remains – fierce. One critic went so far as to write the book on health and wellness programs, making a career out of insulting “experts” who assert such favorable “returns on investment.”7

Why benefits?
Many human resource peers assert that benefits “attract, retain, and engage top talent.” However, broad-based benefit plans aren’t effective at differentiating talent, if only because they must meet eligibility, non-discrimination, and other requirements. Plan design changes significant enough to substantially improve your BrightScope RatingTM from “average” or “below average” to “great” will almost always increase expense and reduce, not improve profits. I suggest you take any such assertions of improved profitability with a couple grains of salt. And, if your senior leadership team asks whether there is some sort of a positive correlation or causality between improving your 401k plan and corporate results, you might be better served by asserting that benefits, in lieu of greater direct compensation, improve the value of the total rewards workers actually receive. Broad-based benefits offer a unique value from the combination of tax preferences, group dynamics and economies of scale – a value that is not available anywhere else.  


1Super Bowl Indicator - the stock market will increase in any year when the team from the National Football Conference wins the Super Bowl or if the Super Bowl winner was part of the NFL prior to the NFL-AFL merger. The indicator has correctly predicted the S&P 500 Index performance in 41 of 51 years, over 80% of the time.  
2Kathiann Kowalski, Explainer: Correlation, causation, coincidence and more: Statistics don’t always say what people think they might, 7/24/15, Accessed on 9/29/15 at:  3A. Tergesen, 401(k) Plan Quality Correlates With Company Profits: Study finds companies with highly rated plans have gross profit margins well above average, Wall Street Journal, 9/17/18, Accessed 9/29/18 at: 
4The BrightScope RatingTM for my 401k was 76 - “average” compared to the peer group. That “average” rating included: Total Plan Cost - Rated as “lowest fees”; Company Generosity – Rated as “average”; Participation Rate – Rated as “Above Average”; Salary Deferrals – Rated as “Great”; Account Balance – Rated as “Great”. BrightScope says it attempts to measure “how quickly each 401k plan will get the average 401k participant to retirement”, “in determining the relative quality of a company's 401k plan when compared to a unique peer group of companies with employees of a similar demographic makeup”. So the BrightScope Rating is not an objective measure against all plans in the database, but a relative rating against a comparator peer group’s 401k plans. Further, the BrightScope Rating does not measure actual retirement preparation since it excludes consideration of other retirement benefits – defined benefit pension plans, non-qualified deferred compensation plans, employee stock ownership plans, as well as employer financial support and access to retiree medical and retiree life insurance.  
5Bureau of Labor Statistics, Employer costs for employee compensation, June 2018, Accessed 9/29/18 at: 
6Towers Watson, 2008/2009 Staying @ Work Report, The Health and Productivity Advantage, Accessed 9/29/18 at:  
7A. Lewis, Why Nobody Believes the Numbers: Distinguishing Fact from Fiction in Population Health Management, 6/26/12, Wiley. See also: A. Lewis, The Outcomes, Economics, and Ethics of the Workplace Wellness Industry, Health Matrix, The Journal of Law-Medicine, Case Western University School of Law, 2017, Accessed 9/29/18 at: 

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