Whose Plans Are ‘Better’ – CPAs’ or Advisors’?

A new analysis applies an industry filter to retirement plan design and performance.

The 401(k) Benchmark Report by ALM Intelligence (commonly known as Judy Diamond Associates), found that the group of 7,500 employers in the Accommodation and Food Services space has the worst plans of any of the surveyed industries, scoring dead last overall in four of the six relevant metrics. The one metric in which it scores well is rate of return, but the median employer contributions were… $0, meaning that fully half of the smallest employers offer no match at all. The employee longevity is also a mere one year. However, the report’s authors note that if you look instead at averages, they find average employee contributions of $3,207 and average employer contributions of $1,630.

Those who are saving are saving well, according to the report, which examined approximately 500,000 active 401(k) plans with at least $3,000 in plan assets and at least one active plan participant for the 2015 plan year. These plans cover about 53 million eligible workers and account for about $4.1 trillion in plan assets, according to the report.

As for the top-rated industry category, that fell to the Certified Public Accountants (CPA) industry, a group of 7,500 firms that the analysis found possessed the second highest median account balances (behind only the Legal industry), with participation rates at a very high average of 86%. However, what the authors said makes this industry notable is the extremely high rate of savings among the plan participants, at a median of over $7,000, which is more than twice the median among all industries ($3,300). The report notes as no surprise that the “high plan score suggests that these plans are being very well run, with a minimum of issues in plan design or administration.” On the other hand, the anomalous rate of return ranks 22nd of the 26 industries, but the authors note that places them in “good company,” as those working in the Financial Advice and Investment Activities space rank 25th.

Speaking of that sector, the report notes that financial advisors are much more likely to try “manage” their accounts more than the average 401(k) saver, and that since advisory firms often have an option in their 401(k) for a self-directed brokerage window – well, they take advantage.

The 11,000 firms in the consulting space collectively rank 9th out of the 26 industries, enjoying the second highest participation rate (a median of 91%), with what the authors described as “outsized” employee and employer contributions. However, the report says that what stands out most about the consulting industry is the longevity of the typical plan participant; the median account balance of $42,797 is only 4.5 times the total annual contribution of $7,380, a finding that the authors say suggest that “many consultants are not staying with a single firm long enough to accrue a significant account balance, despite the size of their contributions.” In fact, this was the lowest, by a significant amount, of any of the industries surveyed. Moreover, they note that the extremely short duration (3.6) at the smallest companies suggests that many small, new consulting firms do not last more than a few years.

Banking came in 6th overall out of the 26 industries reviewed. The authors cited the industry’s No. 1 ranking in total rate of return. While most of the industries surveyed show the largest employee and employer contributions in the smallest (1-10) cohort, the authors note that it is interesting to see that on both of these metrics the opposite is true, with the contributions marching in a straight line from smallest to biggest. This can likely be explained by the fact that even “small” banks are not small businesses in the traditional sense.

The other industries examined in the report are:

Administrative Support and Waste Management
Agriculture
Arts, Entertainment, and Recreation
Construction
Contractors
Dentists
Educational Services
Engineering
Healthcare and Social Assistance
Information and Media
Insurance Providers/Brokers
Lawyers and Legal Services
Manufacturing
Mining and Utilities
Other Services
Physicians
Professional, Scientific, and Technical Services
Real Estate
Retail
Transportation and Warehousing
Wholesale

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