WASHINGTON –If 401(k) plans are any barometer, there are wide disparities in how prepared consumers in various states are to fund their retirements.
A study by Judy Diamond Associates, a 401(k) plan intelligence provider, found residents in Delaware had the highest participation in 401(k) plans, while Nevada residents had the lowest.
For its research, Judy Diamond Associates looked at the percentage of all eligible plan participants who had balances in their 401(k) accounts at the end of the 2012 or 2013 plan years in each state. For each plan, the most recent data available was used.
Among the highlights:
- Delaware had the highest participation rate, 85.8%.
- Other states with high participation rates included Connecticut (83.1%), Iowa (80.5%), New York (80%), and Arkansas (77.5%).
- Nevada had the lowest participation rate, 53.0%.
- Nationwide, 71.5% of eligible participants had balances in their 401(k) plans at the end of the most recently available plan year.
If the District of Columbia had been included, it would have ranked #5 with 78.6% of participants actually participating in their plans.
“The single biggest way an employer can help workers save for retirement is to ensure that they are actually participating in their plans,” said Eric Ryles, managing director of Judy Diamond Associates. “The best plan in the world is useless until a participant actually begins to contribute and build an account balance. Our research shows that employers in some states seem to be encouraging participation more effectively than others.”
Separately, Judy Diamond Associates said there may be a reason so many Nevadans are participating in 401(k) plans, saying it found that state has the highest concentration of its participants in low-performing plans.
“Workers in the states with the highest concentration of participants in low scoring plans are, statistically, disadvantaged compared to workers in other states when it comes to achieving positive retirement outcomes,” said Ryles. “While individual companies can of course buck this trend, the data shows that the average participant of a plan for a Nevada-based company will have a more difficult time meeting their retirement goals than the average participant of a plan for a California-based employer.”
A state’s place in the ranking was determined by the percentage of all participants in each state that were part of 401(k) plans receiving low Plan Scores based on their most recent Department of Labor filings. Judy Diamond Associates said it calculates Plan Scores with an algorithm that considers key measures of the strength of a plan’s design, management and performance, as well as how each of those metrics compares to nationwide benchmarks. Plan scores are available in Retirement Plan Prospector, Judy Diamond Associates’ 401(k) analysis and lead generation database. Plans receive scores up to 100 based on information they report to the Department of Labor annually. For the purposes of this study, plans with a score below 50 (on a scale of 1-100) were considered “low.”
Some highlights from the research include:
- Arkansas had the lowest rate of participants in low-scoring plans,15.0%. Nevada had the highest concentration of participants in low-scoring plans, with 80.6% in plans receiving scores less than 50.
- No state had a majority of its participants in high-scoring plans, though Delaware came closest with 43.3% of participants in high-scoring plans, or plans with scores of 75 or higher.
- Among the five largest states by plan participants, Pennsylvania had the lowest concentration of participants in high-scoring plans, 5.9%, and the second-highest concentration of participants in low-scoring plans, 40.1%. The other four largest states by plan participants were California, Illinois, New York and Texas.
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