Plan participants are demonstrating stronger saving and investing behaviors, as a record number of participants reported increasing their savings rates in 2024.
According to Vanguard’s “How America Saves” report, out today, 45% of defined contribution (DC) participants raised their savings rates last year. When including nonparticipants, employees in automatic enrollment plans saved an average of 12.3%, considering both employee and employer contributions. Employees in voluntary enrollment plans saved an average of 7.4% due to lowered participation rates.
These changes resulted in an average account balance of $134,128 and an average median balance of $35,286. According to Vanguard, participants’ average account balances increased by 19% since year-end 2022.
The findings support Vanguard’s viewpoint that participants should be allocating an average of 12% to 15% of contributions to retirement savings. “We are seeing a record number of participants save more this year compared to the prior year,” said David Stinnett, principal of Strategic Retirement Consulting for Vanguard, in a press briefing with reporters. “That is due to automatic approach like automatic increase, or an affirmative election of their part, like a targeted piece of outreach that we’ve done.”
Automatic enrollment programs continue to grow as a higher rate of plan sponsors implement the tool into workplace plans. The adoption of automatic enrollment has more than tripled since year-end 2007, Vanguard found. At year-end 2023, 59% of Vanguard plans had adopted automatic enrollment, including 77% of plans with at least 1,000 participants.
Automatic plan design is stronger in today’s plan, too, the research reported. In 2023, 60% of plans chose a default rate of 4% or higher, compared with 27% of plans in 2005. Twenty-nine percent of plans chose a default of 6% or more—nearly double the proportion of plans choosing 6% or more in 2014.
Savings rates are also growing as a higher number of employers expand their benefits programs. According to the report, 76% of plans today allow for immediate eligibility, 61% of automatic enrollment plans default employees into a paycheck deferral rate of 4% or higher, and 86% of plans now allow for Roth contributions.
As a result, 18% of participants made Roth contributions to their 401(k) plan in 2024, and 67% have invested their entire 401(K) balance into a professionally managed allocation, whether that’s a target-date investment product or managed account advice.
Despite raising their savings rates, participants slightly increased the amount of hardship withdrawals taken. In 2024, 4.8% of participants initiated a hardship withdrawal, even as 95% of participants reported not taking a withdrawal. Further, 13% of participants had a loan outstanding, and the average loan balance was about $10,700.
Participation differs among demographics
Participation rates also varied among employee demographics. According to Vanguard, 40% of employees with an income of less than $15,000 contributed to their employer’s DC plan in 2023, while 95% of employees with income of more than $150,000 chose to participate.
Participation rates were lowest for employees younger than 25, with 58% of these workers contributing to their employer’s plan, while more than eight in 10 employees between ages 35 and 64 participated.
Tenure also played a role in plan participation, as nearly nine in 10 workers with over four years of tenure reported participating in their employer’s workplace plan compared to 73% of employees with less than two years on the job.
Women were also likelier to join their employer’s plan compared to men, even at varying income levels. For example, 88% of women earning $50,000 to $74,999 participated in their employer’s plan, compared with 85% of men in the same income group.
Finally, employees in the business, professional, and nonprofit sector had the highest plan-weighted rate, with nearly 9 in 10 workers participating in their employer’s plan, while employees in the wholesale and retail trade sector had the lowest rate at 76%, Vanguard reported.
Vanguard’s “How America Saves” report analyzed data from over 1,500 qualified plans and nearly five million participants. More information on the data can be found here.
SEE ALSO:
How America Saves? At a Record Pace in 401(k), Vanguard Finds
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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. She is originally from Queens, New York, but now resides in Denver, Colorado.