An annual analysis that tracks the overall performance of 401(k) plans both by industry and by company size finds considerable variations between the top and lowest performers.
Results from Judy Diamond Associates’ eighth annual 401(k) Plan Benchmark Report show that the top five industries with the best 401(k) plans in 2023 were certified public accountants (CPAs), doctors, lawyers, dentists and banking. Following closely behind were financial advice/investment activities, insurance providers/brokers, and engineers. By contrast, the worst-performing sectors were accommodations and food services, educational services, healthcare and social assistance, and waste management.
For this report, the firm examined approximately 610,000 active 401(k) plans covering about 68 million eligible workers and $6.4 trillion in assets among 27 different industry groupings across eight company sizes. Data comes from Form 5500 filings for the 2022 plan year and represents the most recent data available at the time, the report notes.
The rankings are based on seven different metrics of plan performance, including:
- average account balance;
- participation rate;
- rate of return;
- employee contributions;
- employer contributions;
- plan score; and
- employee longevity.
Mixed Results
Overall, the 2022 plan year was a “down” year in many respects, the report notes. The total number of plan sponsors the firm tracked declined from 626,000 to 610,000, and the total assets declined by about 20% from $8 trillion to $6.4 trillion, which follows the 18.11% decline in the S&P. Consequently, the average account balance fell from $128,000 to $101,000, due largely to the S&P decline.
In addition, while overall participation rates fell slightly, it’s possible they were impacted by the creation of about 3,500 more new 401(k) plans than in the previous year (55,780 vs 52,128), the report further observes, adding that new plans often have artificially low participation rates in their first year due to eligibility requirements.
Perhaps the most interesting data point in the report’s year-over-year comparison has to do with employee longevity, notes study author Eric Ryles, who is Vice President of Customer Solutions at Judy Diamond Associates. “In last year’s report, if you summed the longevity of all 27 industries it comes to 272.8 years—an average of about 10 years per industry. In this year’s report that figure is 203.2 years, an average of 7.5 years,” remarked Ryles.
According to the report, this figure is a representation of how long the average worker needs to stay in an industry to accrue the average account balance, based on the average contributions being made to the plan.
The Top vs. the Bottom
Meanwhile, for the second year in a row, the 8,177 companies that make up the CPA segment placed first out of Judy Diamond’s 27 industrial groupings. According to the findings, CPAs placed in the top five on every one of the seven metrics the firm tracks, placing first in both account balance and participation rate, second in both employee contributions and plan score, and fourth in both employer contributions and employee longevity.
The CPAs overall score is almost 50% better than physicians as the 2nd place finisher. One possible reason, the report notes, is that CPAs are an extremely bottom-heavy industry, with 53% of firms having 10 or fewer employees.
“We have often noted that smaller firms tend to offer more generous plans (if for no other reason than that the owner of the company represents 10% of the participants at a minimum), and CPAs are no exception,” observed Ryles. “With median employee contributions of $9,000, it’s difficult to imagine any other industry taking 1st place away from the CPAs any time soon,” he added.
Perhaps not surprisingly, the 13,237 companies that make up the hospitality segment (accommodation and food services) once again finished in 27th place out of the report’s 27 groupings.
As an industrial group, the hospitality industry had a notably outsized decline in average account balance, 10% more than the next highest industry. As such, the 38% decrease is twice what the S&P was down during the plan year. “We are forced to assume that this industry saw some major turnover, with older workers who had higher balances leaving the plan, replaced by younger workers with little or no balance,” observed Ryles.
Also of note is that employee contributions rose by 56% year over year, but even with this improvement, the hospitality industry still had the least amount of employee contributions. “In searching for a reason that underlies this trend, we hypothesize that if the trend of older works leaving with their higher account balances is true then it may be the case that the newer workers are being automatically enrolled in the plan upon hiring,” he explained.
The report can be downloaded at www.judydiamond.com/. Judy Diamond Associates is a unit of ALM Global, LLC.
