Vanguard’s 18th edition of How America Saves 2019
Did you ever wonder how you compare to others? Everything you could ever want to know about 401(k) Plans but were afraid to ask can be found within this 100+ page fact-filled publication. While the data is coming from only plans on their platform, the key highlights are consistent with what we have seen across similar type studies. The data set is quite robust consisting of 4.6 million participants in about 2,000 plans. The report reviews participant behavior within the plans that Vanguard provides services to. Here are a few of the highlights:
Target Date Strategies: The use of target date strategies continues to grow. Nine out of 10 plan sponsors offered TDFs at year-end 2018, up more than 50% from 10 years ago. 97% of all Vanguard participants are offered TDFs, while 77% of all participants use these funds. 52% of participants have their entire account invested in a single target date fund. The qualified default investment alternative (QDIA) regulation continues to influence adoption of TDFs. However, voluntary choice remains important since half of single target date investors choose TDFs on their own.
Automatic Saving Features: Automatic enrollment has tripled since year-end 2007. At year-end 2018, 48% of Vanguard plans had adopted automatic enrollment. Two-thirds of auto enrollment plans have implemented auto deferral rate increases. More plans are applying this to all employees versus just new hires.
Plan Participation Rate: In 2018, Vanguard’s plan participation rate was estimated at 82%, up slightly from 2017. Plans with automatic enrollment have a 91% participation rate versus just 60% for plans with voluntary enrollment.
Savings Rates: The average Vanguard participant deferral rate was up slightly to 6.9%. The median deferral rate is 6% which has been the same for as long as they have been tracking this metric. Primarily due to the most common matching formula being 50% of 6% of pay. Roth 401(k) contribution adoption increased in 2018 as the feature was adopted by 71% of Vanguard plans and 11% of participants within these plans elected the option. Only 13% of participants save the maximum allowed including catch-up contributions if applicable.
Loan Activity: Loan activity was generally flat for the year with 15% of participants having a loan outstanding equating to about 1% of aggregate plan assets. The percent of participants that had an outstanding loan is down from 18% in 2013.
Index Investing: In 2018, 613 of Vanguard plans offered a set of options providing an index core. Over the past decade, the number of plans offering an index core has grown by 73%. Counting passive target-date investments, 8 in 10 participants hold index equity options.
Average Account Balance: At year-end 2018, the average account balance for participants was $92,148 while the median balance was $22,217. The large divergence is due to a small number of very large accounts that dramatically raised the average above the median. The average and median account balances in 2018 were lower due to the market related issues in Q4 2018. Automatic enrollment does initially drive down the balance numbers for new participants. This does not factor in outside investments that the participants may hold in other investment or 401(k) accounts.
Participant Trading: During 2018, only 8% of participants traded within their accounts, while 92% did not initiate any exchanges. Vanguard has seen a decline in participant trading over the last decade, partly due to the growth in target date fund adoption by plan participants.
Click here if you would like to learn more about this study. Vanguard also provides a Small Business addition of the study via their partnership with Ascensus. This study is specifically for plans under $20 million in assets. Click Small Business Addition for the report. This is the 2018 version and the 2019 should be available in the summer.
In addition, Vanguard makes available a plan comparison tool. Plan Comparison Tool
If you would like to discuss the results or work with the Filice Team to more specifically benchmark your plan, please let us know.