Participation rates in 401(k) plans recordkept by Vanguard have reached an all-time high of 83% according to the firm’s annual release today of How America Saves—an industry-leading compendium of the retirement savings behaviors of nearly five million American workers.
Vanguard credits the power of design features like automatic enrollment and automatic escalation for increasing participation and savings rates, but added that personalized advice will take on increased importance moving forward.
“The next frontier of retirement savings will be advanced by personalized advice that helps investors reach their long-term goals.”
Tim Buckley, Vanguard Chairman and CEO
“It is encouraging to see a record number of U.S. plan participants saving to secure their financial futures,” said Tim Buckley, Vanguard Chairman and CEO. “Automatic solutions revolutionized retirement planning over the last decade. However, investment success depends not only on the funds you hold but also the advice you get on those funds. The next frontier of retirement savings will be advanced by personalized advice that helps investors reach their long-term goals.”
Employers are increasingly bolstering 401(k) plans with services designed to meet the broader financial needs of their employees, including advice. In 2022, Vanguard’s report found 41% of all plans offered advice services; amongst larger plans with more than 5,000 employees, 81% offered advice. Altogether, nearly three in four plan participants now have access to advice, such as a robo-advisor or guidance from a CFP.
Other notable findings from How America Saves, now in its 22nd edition, include:
- Automatic enrollment removes barrier to entry: As mentioned, this year’s report featured a record-high plan participation rate of 83%. Adoption of automatic enrollment, one of the leading catalysts for plan participation, has more than tripled since the passage of the Pension Protection Act in 2006. Today, nearly 58% of plans and 76% of plans with at least 1,000 participants have adopted this design, bypassing the inertia and procrastination often responsible for inhibiting voluntary enrollment. The report says auto-enrolled employees saved nearly 40% more in 2022.
- Retirement savers stay the course: Despite significant market uncertainty, nearly a quarter of participants saved at least 10% of their income for retirement and the average deferral rate remained at a historic high of 7.4%. With nearly 98% of participants also offering some type of employer contribution, the total average contribution rate was 11.3%.
- Plan features help participants weather market volatility: Participant trading has dramatically declined over the last 15 years, with just 6% of participants trading last year. This is attributable to the increased adoption of target-date funds and retirement savers valuing buy-and-hold strategies. The sophisticated simplicity of professionally managed allocations such as target-date funds is leading the trend, as just 2% of those participants traded during the same timeframe.
“Building on the proven benefits of smart plan design, employers are increasingly exploring more comprehensive efforts to help their employees reach their long-term financial goals,” said John James, managing director and head of Vanguard Institutional Investor Group. “In addition to advice, forward-thinking plan sponsors are offering financial wellness tools such as student debt paydown and supplemental savings accounts like HSAs. In partnership with Vanguard, sponsors are making vital enhancements to not only support talent attraction, but to also put savers on a personalized path to better investment outcomes.”
See the full How America Saves report here.
SEE ALSO:
• DC Plan Asset Growth in Q1 Outpaces Overall Retirement Asset Gains
• Self-Directed 401(k)s See 6.6% Gain in Q1 2023
• Retirement Account Balances Increase Across the Board
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.