Automatic Plan Features Drive Participation and Account Balance Growth
Automatic plan design features are stronger than ever before and are only expected to continue growing as legislation advances in the future.
Findings from Vanguard’s 25th annual How America Saves report, out today, show that automatic enrollment adoption has tripled in almost 20 years. By year-end 2025, 61% of defined contribution (DC) plans who utilize Vanguard adopted auto-enrollment solutions, including 79% of plans with at least 1,000 participants.
Further, over 70% of plans with auto-enrollment solutions utilized automatic annual deferral rate increases in 2025. Automatic enrollment defaults have also jumped in the past 10 years, with 62% of plans defaulting employees at 4% or higher, compared to 43% of plans in 2015. About one-third of plans now offer deferral rates at 6%, for another all-time high.
Participant behavior has improved overtime as well, with Vanguard’s participation rate now sitting at 86%–a 5% increase from 2017.
The increases, along with changes in behavior, have led to an uptick of 13% in account balances.
Plan design upgrades
As individuals rely on employers for help with retirement planning, companies have upgraded plan designs to include automatic features, employer contributions, and diversified investment options. Plans with automatic enrollment boasted a 94% participation rate, compared to 64% of voluntary enrollment plans.
Matching contributions from companies have also risen in the past years to a record 4.7%, reported Vanguard.
“Plan designs are getting stronger every year; we are seeing record-high participation savings rates as outcomes, and the majority of those are due to annual escalation features,” said Jeff Clark, head of Defined Contribution Research at Vanguard. “Investments are also playing a huge role in helping participants be more well-diversified and allocations.”
Similarly, increases in financial guidance and advice have driven changes in behavior, the research notes. Nearly 70% of participants now use professionally managed allocations.
Market uncertainty, regulation drive behaviors
Vanguard also noted a shift in participant attitudes during times of market uncertainty. President Donald Trump’s series of tariff changes in 2025 triggered periods of economic volatility, yet participants largely held onto their savings and investments. Vanguard research found that only 1% of target-date fund (TDF) investors made an exchange during this period, and just 5% traded during periods of volatility.
Plus, another 45% of participants boosted their deferral rate last year, with two-thirds of that increase a result of annual escalation features.
“This is impressive when you think about the volatility last spring with the tariff announcements. We are seeing a lot of resiliency that is built from automatic features,” said Clark.
Provisions included in SECURE 2.0 drove further participation, Clark states. Auto portability benefits offered in the legislation allow participants to automatically roll over retirement accounts with $7,000 or less to a new plan.
As rumors circulate over potential SECURE 3.0 legislation, Clark expects the future of automatic solutions to only continue expanding.
“We know a lot of people are leaving their jobs more frequently, a lot of people are leaving their employer with smaller balances, we know that smaller balances are more likely to be cashed out, so that is something that we’re looking to further expand and use there,” Clark added.
Improvements for the future
While Vanguard’s report showed significant progress among participants, it also highlighted issues in balancing long-term savings with short-term needs.
According to the research, the percentage of participants who have taken hardship withdrawals has increased over the past five years. Among all Vanguard DC plans, 94% allowed the withdrawals, and of all participants with the option, 6% took money from their retirement savings account.
Of participants who initiated a hardship withdrawal, 46% took more than one throughout the year, and 21% took three or more.
While Vanguard’s research notes that one or two withdrawals over a 30- to 40-year career will unlikely have much impact to retirement savings, multiple distributions “can, over time, undermine retirement savings,” the research stated.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news.