Which Industries Offer the Best 401(k)s? You May Be Surprised.

As an industrial group, accommodation and food services businesses have historically lacked attractive retirement benefits, and the sector was hit particularly hard by the pandemic, which characterized much of the 2021 plan year.

As the report states, the year-over-year comparisons from 2020 reveal the full story. On average, both employee and employer contributions per participant declined 43% in 2021, while account balances also fell slightly, from $29,415 to $28,032.

When one considers that the S&P 500 returned 26.6% during the calendar year, the implication is that the employees either took hardship withdrawals, borrowed money from their plan, or even withdrew money and got hit with the 10% penalty.

Adding to the performance drag, nearly a third of employers (30%) made no matching contribution.

Plan Returns Lagged

In summarizing their findings, the report's authors underscore the fact that the rate of return metric is the one that they weigh least heavily, as return is usually a function of market mechanics and has little if anything to do with how "well" a given retirement plan is being run.

This is evidenced by the fact the difference between the very best and very worst returns is only about 2%, with a 13.31% return tallied for bankers and a 15.24% return achieved by workers in financial advice and investment activities.

According to the authors, what's most "interesting" about the rate of return for 2021 is that the S&P returned a total of 26.61% in 2021, nearly twice what was seen in 401(k) plans across the country.

This is the widest discrepancy measured since Judy Diamond began its annual report, and it implies that plan participants may have adjusted their investment lineup to be more conservative in response to COVID but did not adjust it back quickly enough to participate in 2021's market rally.

Considerations for Advisors

Publication of the report comes at a time that many wealth management professionals are considering entering the 401(k) plan advisory business, and it may provide useful insight for advisors looking to work with employers and participants.

Experts say working with retirement plans can confer great benefits to any advisory firm with the right approach. The assets in the plan tend to be sticky, and working with any given plan tends to generate substantial wealth planning opportunities stemming from rollovers and by serving the ancillary needs of C-suite executives.

However, there are also many ways that financial advisors can make costly mistakes while entering the defined contribution plan market.

On the one hand, there are stringent and ever-evolving fiduciary standards applying to workplace financial advice. On the other, the lead times for establishing a successful plan relationship can be far longer than a wealth advisor may expect.

Ultimately, the experts warn that dabbling in 401(k) plans is not worth the hassle — either for advisors or clients — but a well-run retirement plan advisory practice can amplify a firm's reach as well as its bottom line.

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