How America Saves 2017

Vanguard: Sponsors Implemented Meaningful Changes to 401(k) Plans Over Past Decade

Dramatic increase in automated features fosters retirement readiness for employees

New research from Vanguard illustrates how DC plans have evolved to become a pillar of retirement savings for millions of Americans

VALLEY FORGE, Pa., June 6, 2017 /PRNewswire/ — Implementation of automated features in defined contribution (DC) plans has skyrocketed over the past decade, driving up plan participation rates, saving rates, and balanced asset allocation strategies, according to How America Saves 2017.

The premier study of DC plans released by Vanguard today indicates that plan sponsors are increasingly using automatic enrollment and automatic escalation, along with designating target-date funds as the default investment option, in their continued focus to foster retirement readiness for employees.

In addition to prudent plan design, Vanguard researchers documented continued steady sponsor contributions in 2016, which drive meaningful enhancements to participant outcomes. Most importantly, 97% of participants received an employer-matching contribution last year. Taking into account nonmatching contributions as well—which can be structured as variable or fixed profit-sharing contributions, or employee stock ownership plans—94% of sponsors offered some sort of employer contribution, benefitting 98% of participants in aggregate.

“DC plans have evolved to become a pillar of retirement savings for millions of Americans, and plan sponsors have responded by building plans that encourage employees to participate, save more, and invest appropriately,” said Martha King, managing director of Vanguard’s Institutional Investor Group. “It’s incumbent upon providers like Vanguard to continue to support sponsors in this important effort, including advocating for best practices in plan design, as well as investing in innovative tools, education, and research that give participants a better chance for success.”

Auto features driving stronger savings

Nearly half of plans use automatic enrollment, representing an astounding 300% growth of this feature over the past ten years. Plan sponsors recognize that defaulting employees into a retirement savings program provides a seamless, effortless start to saving. As a result, plans with automatic enrollment boasted a 90% participation rate. In contrast, plans with a voluntary enrollment feature had the same participation rate of 63% as a decade ago. In aggregate, across all plans, the average participation rate last year was 79%, up 16% from 2007.1

Moreover, plan sponsors are challenging the status quo by raising the default deferral rates of their plans. “When auto features were first introduced, there seemed to be some hesitancy from plan sponsors to default participants at higher rates, believing it might discourage participation,” said Jean Young, senior research analyst in the Vanguard Center for Investor Research and lead author of How America Saves. “Today, more sponsors are embracing higher default rates and, importantly, we found that these higher rates are sticky.”

In the past ten years, plans with default deferral rates of 4% or greater have doubled to 48%. In addition, plans with a default savings rate of 6% or higher have nearly tripled to 20% over the past decade. To further move the savings dial, two-thirds of automatic enrollment plans have now implemented automatic annual deferral rate increases, which nudge savings rates higher by one to two percentage points each year.

DC plans have evolved to become a pillar of retirement savings for millions of Americans

Professionally managed funds improving asset allocation

Through plan design features such as automatic enrollment, plan sponsors are also encouraging better participant investment behaviors. According to How America Saves, nearly all (97%) of automatic enrollment plans designate a target-date fund (TDF) as the default investment strategy. TDFs provide a diversified portfolio of stocks and bonds that automatically adjusts allocations over time as participants age. In 2016, more than half of all Vanguard participants were solely invested in a single professionally managed allocation—typically a TDF. By 2021, Vanguard researchers estimate that figure will jump to about 75%.

Extreme allocations and frequent trading are also declining. In large part due to the growing use of TDFs, the fraction of participants investing exclusively in equities has dropped from 17% in 2007 to 6% in 2016. Vanguard’s research also showed that today’s well-designed plans encourage long-term, disciplined strategies, with less than one in ten participants conducting a trade last year—despite the uncertainty accompanying major market and geopolitical events, such as Brexit and the U.S. presidential election.




1 Note: Stated participant rates refer to the participant-weighted average.
Vanguard: A strategic partner for plan sponsors
With more than $950 billion in DC assets under management, Vanguard serves as recordkeeper and strategic partner to more than 5,900 plan sponsors—helping them to build smarter, stronger DC plans for approximately 4.4 million participants. Vanguard has long been recognized as an industry leader in DC plan design, providing sponsors with the investment options, technology, tools, services, and research to help prepare participants for retirement.


Vanguard’s Center for Investor Research (CIR) is dedicated to the study of individual investors across all types and demographics, and augments Vanguard’s mission to drive investor success through behavioral research and experimentation. Its flagship publication, How America Saves, is now in its 16th year, and is widely referenced by plan sponsors, consultants, regulators, and academics as a benchmarking tool and blueprint for best practices in DC plan design. CIR is an evolution of the Center for Retirement Research, which was established in 2001 to provide plan sponsors with proprietary research assessing the developments in DC plan participant behavior and retirement plan design. Signifying the expanded, global footprint of both Vanguard and its retirement and research capabilities, CIR released its inaugural international edition this year—How Australia Saves—providing similar in-depth analysis into the Australian superannuation system.


Bolstering the firm’s benchmarking capabilities, Vanguard has offered plan sponsor clients the Vanguard Plan Effectiveness Index (VPEI) since 2011. VPEI measures three unique, fundamental factors: participation rate, total savings rate, and portfolio construction. The combined result is a simple, easy-to-understand score, which plan sponsors can use to track annual progress and plan health. In the past five years, Vanguard has partnered with more than 300 DC plans to conduct a custom VPEI analysis, helping plan sponsors identify areas of strength and opportunities to improve overall plan effectiveness.


About Vanguard
Vanguard is one of the world’s largest investment management companies. As of April 30, 2017, Vanguard managed $4.3 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers 369 funds to its more than 20 million investors worldwide. For more information, visit
All figures as of April 30, 2017, unless otherwise noted.
All investing is subject to risk, including the possible loss of the money you invest.
Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target date funds is not guaranteed at any time, including on or after the target date.