Smaller 401(k)s outperform bigger plans

By BenefitsPro


By Nick Thornton

Bigger isn’t always better when it comes to 401(k) plan performance.

In fact, it’s the smallest plans that are setting the pace, according to an analysis by Judy Diamond Associates, publisher of retirement plan data and a division of BenefitPro’s parent company, Summit Professional Networks.

Pooling data from the most recent Form 5500s, Judy Diamond created an algorithm measuring plan participation rates, contribution rates, return on investment and absence of signs of distress.

On a 100-point scoring system, the “micro” plans — those with 10 or fewer participants — had an average plan score of 63.8.

The nation’s 50,000 or so “large” plans with between 100 and 500 participants and roughly 15,000 “giant” plans with more than 500 participants both scored a 52.3.

The “giant” plans — those with more than 500 participants — cover nearly 57 million people, or 73.4 percent of all workers, yet they account for less than 3 percent of all plans.

The smallest plans, while clearly the most productive, only account for 1.4 percent of all workers.

By increasing the performance of the largest 401(k) plans, advisors can potentially bring substantial improvement to the country’s strained retirement landscape, Eric Ryles, managing director of Judy Diamond Associates, said.

“This research underscores the needs for advisors who work with the largest 401(k) plans to continue to look for ways to improve their performance,” Ryles said. “By increasing automatic enrollment, restructuring their company match and increasing participant education, a small portion of large plan sponsors can have a huge impact on the way we save for retirement.”

The “small” category — plans with 11 to 50 enrollees — was the largest group by number of plans studied, with almost 211,000. Their overall rating was second-most productive, but as a group the plans only accounts for 5.1 million workers.

Also read: Which industries offer the best performing 401(k)s?

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