By the end of last year, 36 percent of 401(k) plans serviced by Vanguard had implemented an auto-enrollment feature, a 50 percent increase since 2009, according to its annual report, How American Saves 2015.

Last year, 60 percent of new plan entrants were automatically enrolled.

"Over the past decade, we've seen a meaningful jump in total participation rates,” said Jean Young, lead author of the report and a senior analyst at the Vanguard Center for Retirement Research.

“Three-quarters of eligible workers now participate in their employer's plan, up from two-thirds ten years ago, underscoring the impact of autopilot plan designs," she added.

And that is moving the needle with target-date funds, as 95 percent of all plans that utilize automatic enrollment direct participant savings into a TDF.

That means 45 percent of all participants in Vanguard-administered plans invest only in TDFs, compared to 25 percent at the end of 2009.

Vanguard expects TDF adoption to hit 50 percent this year and reach 63 percent of the 3.9 million participants enrolled in Vanguard-administered plans by 2018.

New plan enrollees are overwhelmingly being defaulted into TDFs, as eight in 10 were solely invested in the professionally managed allocation.

All told, 88 percent of plan sponsors are using TDFs, and 64 percent of participants in the Vanguard universe own a TDF in their account.

Wide adoption of TDFs is lowering the incidence of what Vanguard calls “extreme” allocations. By the end of 2014, one in eight employees were extremely allocated. Specifically, 8 percent of participants held only stock funds, and 5 percent held only fixed-income funds.

Ten years ago those figures were dramatically riskier, as one in three participants was extremely allocated, with 21 percent hold all-stock allocations.

While automatic enrollment is moving participation rates in a positive direction—it was 77 percent in 2014—average deferral rates remained steady in 2014 at 6.9 percent, down from their peak of 7.3 percent in 2007

That’s because automatic enrollment leads to lower average deferral rates, as many participants participate at set minimum contribution levels, which is often 3 percent.

When factoring employer matches, the average contribution rate in 2014 was 10.4 percent.

The average account balance was $102,682, up 28 percent from the dark days of 2009.

The median balance in 2014 was $29,603, a 6 percent decline, likely the result of more new enrollees and accounts with limited assets.

The fund company that built its brand on low-cost, passively managed index funds is reporting higher fee-consciousness in sponsors, who are increasing index funds in investment menus.

Just over half of Vanguard’s sponsor clients offered a “passive core,” or a set of low-cost index options that span global capital markets. That number has grown by nearly 90 percent over the past decade, according to the report.

Only 10 percent of participants showed trading activity in the their accounts in 2014, and loan activity was down to 17 percent of participants, a 4 percent improvement over the previous year.

As of the end of March 2015, Vanguard serviced 4,700 plan sponsors, accounting for $670 billion in plan assets.

Instant Insights /

Auto-enrollment, TDFs leading 401(k) trends at Vanguard

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