An annual analysis of 401(k) plan data finds that the top five industries with the best plans continue to outpace the competition in nearly all metrics.
The results of Judy Diamond Associates’ sixth annual 401(k) Plan Benchmark Report finds that for the second year in a row, the 11,532 firms that make up the Financial Advice and Investment Activities sector turned in the best overall performance, coming in at No. 1 overall out of the 27 industrial sectors surveyed. In four of the seven metrics, the sector was best or tied for the No. 1 spot, according to the analysis.
This group is notable for its extremely high employee and employer contribution rates. And since most employer dollars contributed to a plan are structured as matches to the employee contributions, there is a strong correlation between those two data points. “Financial Advisors continue to do well in this kind of performance-based analysis, having placed in the top three industry sectors in each of our last six studies,” the report states.
Meanwhile, the 11,086 companies in the Accommodation and Food Services sector rank 27th out of the 27 groupings surveyed—also for the second year in a row. Among the seven performance metrics, the sector ranked at or near the bottom in all of them and underperforms even the 26th industry by a fairly wide margin, the report notes.
With this sector being home to many part-time or transient employees who typically do not participate in the company’s 401(k) plan, the median participation rate for this industry is only about 56%. In comparison, the next lowest median participation rate is 80% among transportation and warehouse workers.
For this report, the firm examined approximately 600,000 active 401(k) plans covering about 66 million eligible workers and about 16 million retirees who maintain a plan balance, equaling about $6.8 trillion dollars in assets. Data for the report comes from 2020 plan year Form 5500 disclosures.
Year-Over-Year Trends
While the overall numbers continued to climb, year-over-year growth rates fell dramatically from 2019 to 2020. For comparison’s sake, the firm notes that the plan year represented by this data is not like other years, as much of the 2020 plan year was overshadowed by the pandemic. “It is worth stressing here that the numbers themselves are still moving in the right directions, increasing year over year rather than decreasing. It is the rate of that increase which has slowed dramatically,” notes study author Eric Ryles, Vice President of Customer Solutions at Judy Diamond Associates.
Total plan assets grew from $6 trillion to $6.8 trillion, a 13% increase compared to a 20% growth rate in 2019. The growth rate of active participants with an account balance also declined sharply, from 5.3% to 1%, the report notes. Participation rates continue to hover at around 81% for the third year in a row, holding steady after several years of increases led by widespread adoption of automatic enrollment options.
Total contributions from both employees and employers increased by about 8% year-over-year, though growth in employee contributions declined from 8.7% to 5.6%, while growth in employer contributions declined from 7.2% to 1.7%, as many employers suspended or delayed matching contributions during the pandemic. That said, total employer contributions did grow from about $150 billion to $152 billion.
The report further observes that median employee contributions per participant, somewhat counterintuitively, grew by 7.8%, the biggest annual increase ever tracked, as many lower-dollar contributors stopped contributing entirely while high-dollar contributors were unaffected, thus driving up the median contribution.
One observation the report makes is that, while the overall rate of return is down across the board from 2019, about 8% of plans end their plan year in March or June, so the rate of return on those plans is vastly different than other 2020 plans, because their plan-year essentially locked in those losses from the market downturn in March without benefitting from the eventual recovery.
The Top 10
As for the overall rankings by industry, here are the top 10:
- Financial Advice/Investment Activities
- Certified Public Accountants
- Lawyers and Legal Services
- Physicians
- Financial and Insurance Services (All Other)
- Engineers
- Insurance Providers/Brokers
- Dentists
- Consultants
- Mining and Utilities
