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Which Industry Has the Best 401(k)?

Industry Trends and Research

An annual 401(k) plan benchmarking report finds that the top five industries with the best plans continue to outpace the competition for the third year in a row.  

Judy Diamond Associates’ fourth annual 401(k) Plan Benchmark Report, which tracks the overall performance of plans by industry and size of company, finds that the top five industries with the best 401(k) plans in 2017 were Certified Public Accountants, Financial Advisory, Legal, Dental, and Insurance. 

The report notes that the CPA industry is represented by 7,606 firms with an active 401(k) plan, and for the third year in a row it ranks first. CPAs also saw the third-highest increase in average account balance, with a gain of $12,961. “Last year, we cautioned that Financial Advisors, Lawyers, and Dentists made up substantial ground on the CPAs and could overtake them for the number one spot,” the report states. While Dentists have given back some of their gains, Financial Advisors and Lawyers are now only one and three points back from CPAs, respectively, the authors observe. 

The report, which aims to provide an objective set of performance-based benchmarks, examined nearly 520,000 active 401(k) plans with at least $3,000 in plan assets. The data came from the 2017 plan year – the most recent reported – and covers 27 distinct industries with nearly 66 million eligible workers, 45 million of whom are active plan participants. An additional 14 million retirees maintain a plan balance. 

To calculate the overall rankings, the report examines seven different metrics of plan performance: average account balance, participation rate, rate of return, employee and employer contributions, plan score and employee longevity.

The five industry groups with the most improved 401(k) plans were Financial and Insurance Services, Banking, Engineering, Construction and Manufacturing. To calculate those rankings, JDA examined the year-over-year changes in average account balance, participation rate, and employee and employer contributions. 

Year-Over-Year Trends

The report’s authors note that they see some interesting year-over-year trends in 401(k) plans. Collectively, they estimate, 401(k) plans gained $800 billion in value last year, or about 18%, reaching a record $5.3 trillion in plan assets. 

However, participation rates were relatively flat, with no industry increasing its median participation rate by more than 1%, according to the data. The authors emphasize that the participation figure of 73% is reflective of all people who are eligible to participant in any plan, versus those who actually ended the year with an account balance (minus any retirees). 

Total contributions from both employees and employers rose by 8% – double the 4% increase in the actual number of plan participants. The authors explain that if savings rates were flat, they would expect these numbers to be the same, with 4% more people contributing about 4% more to total contributions. The fact that contributions rose more than the number of new participants indicates that both employees and employers contributed more than in the previous year. JDA also continues to see more plans utilizing automatic enrollment, with 10% of the plans surveyed offering this option in 2017, up from 8.4% the previous year and 7.1% the year before that.

“This year’s report shows a notable increase in 401(k) contributions from both employees and employers,” notes Eric Ryles, Vice President of Customer Solutions at ALM, parent company of JDA. “Between this increase in total contributions and continued adoption of automatic enrollment, more U.S. workers are on a path towards a successful retirement than ever before.”

Additional findings show that at the end of the 2017 plan year, the median account balance rose $5,355, to $59,937, while the average account balance registered at $105,000. And the number of new 401(k) plans declined year-over-year by 3%, to 37,919.

As to the back of the pack, for the second year in a row Accommodation and Food Services, comprised of 8,502 employer groups, ranked last among all industry groups surveyed and by quite a large margin, ranking either last or second-to-last across every metric, the report observes. This group is also among the least improved plans in the study, coming in as the 24th most improved industry out of 27, ahead of only Healthcare and a catchall “Other Services” category. “It is worth noting that this industry often employs younger or seasonal workers and has comparatively weak wages compared to some of the other white-collar industries evaluated in the study,” the report states, noting that these facts are also reflected in the poor levels of participation.