Financial advisory firms provide the best 401(k) plans when compared to plans provided by a wide range of industries, according to the 2022 401(k) Benchmark Report prepared by Judy Diamond Associates and released today.
The report reviewed 600,000 401(k) plans in 27 industries and graded the industries based on employer contributions, employee participation rates, account balances, rates of return and other factors to come up with a metric to rate the best to worst industries for protecting the employees retirement. The review included 11,532 firms in the financial advice and investment activities category, which topped the list for the best plans.
“This group is notable for its extremely high employee contribution and employer contribution rate, which makes sense given that the average pay for someone in this space is likely to be substantially more than most of our other industry groups,” the report said. “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 six yearly studies.”
The report, which is free, gives overall results and then breaks down plans for a variety of industries so that employers can compare themselves to their peers. Certified public accounts, lawyers and legal services, physicians, and financial and insurance services made up the top five in that order in the 2022 report. Arts, entertainment and recreation; educational services; and accommodations and food services were the bottom three industries for the quality and participation rate of retirement plans.
Overall, employer-sponsored retirement plans, which represent $6.8 trillion in savings, took a big hit during the pandemic, according to Judy Diamond Associates, a Washington, D.C.-based employee benefits research firm. The growth in plan assets and contributions, which had been increasing, slowed significantly for 2020 (the most recent data available) compared to 2019 for both employees and employers.
“Employer contributions to plans were hit especially hard as many companies reduced or even suspended their 401(k) match. This important metric, which had been growing steadily, declined almost 75% year over year,” the report said.
The decline in contributions points out the need for both employees and employers to up their game in the next few years as the economy recovers, Eric Ryles, vice president of customer solutions and the author of the report, said in an interview.
“The single most important thing an advisor to a plan sponsor can stress is the need for participation. During Covid, there was a steady 81% participation rate for companies that provide plans, but we saw a decline in contribution amounts,” Ryles said. Plan sponsors and advisors need to draw those employees back in who reduced their contributions during this time, he added.
Advisors to employers who have generous matching contribution plans can encourage them to use the retirement as a recruiting and retention tool for talent as the labor market tightens, he said. They also can help draw employees into plans by pointing out the employer matching funds. “Some employers do not do a good job of informing employees about the benefit,” Ryles said.