In a preview of their upcoming research in June, Vanguard found participants remained resilient despite challenging economic markets in 2022.
Vanguard’s initial data of its “How America Saves 2023” research shows that 40% of participants increased their deferral rate last year, while 66% upped their use of professionally managed allocations, and just 6% of non-advised participants traded. The research analyzes plan data from close to five million defined contribution (DC) plan participants in the past 20 years.
Top trends in an uncertain market
Vanguard’s preview highlights key trends that dominated 2022—a year that marked the onset of economic uncertainty and recession rumors. Inflation skyrocketed to its highest point in 40 years and mortgages rose to a 20-year high. Despite these changes in the market, the Vanguard research finds that participants remained generally unbothered. A majority (79%) of participants maintained their balance strategy, up marginally from 78% in 2021. Ninety-seven percent of participants did not take a hardship withdrawal in 2022.
Automatic enrollment design continued as a significant trend in 2022, with 58% of Vanguard plans who allow employee-elective deferrals adopting an auto-enrollment design. Out of all groups, larger plans were more likely to add auto-enrollment into their plan design, with 76% of plans with at least 1,000 employees implementing the feature.
Fifty-nine percent of plans with automatic enrollment defaulted their employees into the plan at a rate of 4% or higher, and about 7 in 10 plans automatically enrolled workers into an automatic escalation feature.
Account balances fall while contributions increase
With equity and bond markets falling last year, average account balances fell by 23% compared to year-end 2021, at $112,572.
Fifteen percent of participants raised their payroll deferral percentage, while 9% decreased it. An additional 24% of participants had their deferrals boosted due to an annual automatic increase from their employer.
Use of professionally managed allocations rise
Professionally managed allocations continue to increase in usage, the Vanguard research finds. The tools have seen an 83% increase since 2012, from 36% ten years ago to 66% in 2022. The increase marked a raise of two percentage points since year-end 2021.
Vanguard links the growth to a reduction in portfolio construction errors. Seventy-nine percent of participants held broadly diversified portfolios at the end of 2022.
Additional findings from the research can be found here.
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