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Data and Research March 20, 2017
Research Finds Micro 401(k) Plan Sponsors More Generous
The research also found participation levels and investment offerings for most plans were good.
Reported by John Manganaro
The second annual 401(k) Plan Benchmarking Report from ALM Intelligence/Judy Diamond Associates finds a clear “disparity between the quality of 401(k) plans in white-collar and blue-collar industries.”
Similar to conclusions drawn by the latest PLANSPONSOR DC Survey, the benchmarking report suggests “there are meaningful differences in the amount of retirement income a worker can expect to earn based on their industry and the size of their employer.”
“Micro-sized companies with between two and 10 employees tend to have higher account balances and more generous employer contributions than any other size cohort we looked at,” researchers report. “This holds true across industries, though there is also a correlation between white collar industries and average account balance. People who make more are, simply put, capable of saving more.”
The analysis shows, after ranking industries using a variety of criteria, Certified Public Accountants, as an industry, had the highest median plan score, while the legal and insurance industries had the second- and third-highest scores, respectively.
“The educational services industry was ranked last, followed by accommodation and food services,” the report says.
Looking broadly at the 401(k) landscape, median participation rates among 401(k) plans “in a broad spectrum of industries are fairly good.”
“None of the 26 examined industries has a median participation rate of less than 86%,” the report suggests, “indicating that the majority of employers understand the necessity of encouraging employee participation in their 401(k) plans.”
The report is based on 2015 plan-year data, and “as in 2014, the average 401(k) plan rate of return did not vary significantly based on employer size or industry.” Researchers say this finding is “encouraging, because it suggests that most employers offer good-quality investment options.”
Interestingly, the analysis shows 401(k) plans in the financial advice/investment activities industry have the second-lowest median rate of return. At the same time, plans offered by consultants have the lowest median employee longevity among the 26 surveyed industries.
“This suggests that many consultants are moving between firms, or starting their own companies and then returning to larger firms after a few years,” the report says.
Information about obtaining ALM Intelligence/Judy Diamond Associates research is available here.