401(k) participants saved at record-high rates in 2023, according to How America Saves, Vanguard’s annual report on the retirement savings behaviors of nearly five million American workers, released today.
“Smart plan design features are removing barriers to saving.”
Vanguard’s John James
The report found that the average participant deferral rate matched the historic high of 7.4% in 2023 (the median deferral rate was 6.2%). When combined with employer contributions, the average participant total savings rate kept pace with the all-time high of 11.7% (median 11%), reached the prior year.
“Smart plan design features are removing barriers to saving. Growth of advice and financial wellness tools are encouraging investing behaviors that lead to retirement readiness for more Americans,” said John James, managing director and head of Vanguard Institutional Investor Group.
Chief among those smart plan design features making a significant impact? Auto-enrollment. In 2023, a record-high 59% of plans recordkept by Vanguard offered automatic enrollment, which research has shown improves participation rates. Among auto-enrollment plans, 60% defaulted employees at a deferral rate of 4% or higher, an all-time high.
Ten years ago, only 35% of plans defaulted employees into the plan at a rate of 4% or higher. More participants than in any previous How America Saves report (43%) increased their savings rate in 2023, driven in part by plan design features like automatic annual savings increases.
The report found 77% of plans with more than 1,000 participants featured automatic enrollment. Plans with automatic enrollment had a 94% participation rate, compared with 67% for voluntary enrollment plans. And two-thirds of automatic enrollment plans have implemented automatic annual deferral rate increases.
This year’s report also dug up some other encouraging plan design trends that led to workers increasing their savings and improving their investing behaviors. Among them:
- Advice becomes more accessible: The percentage of plans offering managed account advice is at an all-time high, and more than 3 in 4 participants now have access to advice. Additionally, a record-high number of participants with access to advice enrolled in the service in 2023.
- Employers make it easier for workers to invest for the long-term: Only 1% of investors who invest exclusively in a single target-date fund traded in 2023. A record-high 64% of all 2023 contributions went into target-date funds, which many employers offer as an automatic or default investment strategy.
More key findings
• 401(k) Account balances: In 2023, the average account balance for Vanguard participants was $134,128; the median balance was $35,286. Vanguard participants’ average account balances increased by 19% since year-end 2022, driven by an increase in equity and bond markets and ongoing contributions over the year. For comparison, the average 401(k) account balance at Fidelity at the end of 2023 was $118,600, and was $115,000 at plans recordkept by T. Rowe Price.
• Roth growth: A Roth feature was offered by 82% of Vanguard plans at year-end 2023, up from 74% in 2019. Among larger plans, 95% offered the feature. At year-end 2023, 17% of participants within these plans had elected the option.
• Target date funds: 96% of plans offered target-date funds at year-end 2023. An important factor driving the use of TDFs is their role as an automatic or default investment strategy. The qualified default investment alternative (QDIA) regulations promulgated under the PPA continue to influence adoption of TDFs. Among plans choosing a QDIA, 98% of designated QDIAs were target-date funds. Two percent were balanced funds. Eighty-three percent of all participants used TDFs, and 70% of target-date investors had their entire account invested in a single TDF.
• 401(k) loan activity: During 2023, loan use increased slightly from 2022, however, it remained below the typical use rates of the years before COVID-19. Thirteen percent of participants had a loan outstanding, and the average loan balance was about $10,700. Hardship withdrawals rose from 2.8% in 2022 to 3.6% of participants in 2023, meaning more than 96% did not take a hardship withdrawal last year.
The future of 401(k) plan design
As 401(k) participants benefit from the impact of strong plan design features like automatic solutions, the How America Saves report noted that plan sponsors continue to expand the breadth of offerings available within retirement plans.
“The 401(k) plan is evolving, bringing together not just retirement savings, but also broader financial wellness support for employees,” James said. “Together with plan sponsors and consultants, we are building on the strong foundation of plan design features such as auto-enrollment to better enable employees to reach their financial goals through advice and innovative technology.”
Vanguard’s financial wellness experience for retirement plan participants includes tools for emergency savings, debt paydown, tax-efficient savings strategies, student debt management, and more, with additional enhancements continuously added to the digital platform. Vanguard works closely with employers to personalize recommendations and guidance for plan participants, resulting in an increase in positive retirement savings actions such as higher paycheck contributions.
For more than two decades How America Saves has documented retirement plan design and its impact on American workers’ saving and investing behaviors. The report provides a detailed snapshot of the U.S. defined contribution retirement landscape and serves as an important source of benchmarking and insights for plan sponsors and consultants.
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• 401(k) Account Balances Reach Record Levels