10. Catching up
Nearly all Vanguard plans allow workers age 50 and over to make catch-up contributions.
About 15 percent of eligible participants took advantage of the option.
But the option is difficult to tap. A participant earning $100,000 a year would have to defer more than 20 percent of their income to utilize the catch-up.
Of higher earners making more than $150,000, 60 percent utilized the catch-up contribution.
By share of total assets, Vanguard accounts for nearly 19 percent of the more than $7.5 trillion market; assets in Vanguard plans were more than $1.4 trillion as of the end of the first quarter this year.
The slides that follow look inside the numbers of Vanguard’s DC report. Read more about Vanguard DC plans below. (Photos: Shutterstock)
1. Professionally managed accounts
By the end of last year, 60 percent of participants were solely invested in a single target-date fund, balanced fund, or managed account.
Back in 2004, only 10 percent were; in 2007, just after the enactment of the Pension Protection Act, 20 percent of Vanguard participants were invested in lone professionally managed accounts.
Of the participants enrolled in plans for the first time in 2018, nearly 90 percent were invested in a lone professionally managed option.
By 2023, Vanguard predicts that 80 percent of its participants will be invested in a professionally managed option.
2. TDFs continue their dominance
TDFs are by far the favored professionally managed account option. More than half—52 percent—of all Vanguard participants were wholly invested in a single TDF.
Managed accounts and balanced funds accounted for 4 percent and 3 percent, respectively.
Of the plans that use automatic enrollment, 98 percent use a TDF as the default.
All told, nine in 10 sponsors offered a TDF. Nearly 80 percent of all Vanguard participants are at least partially invested in a TDF.
3. Spread on contribution rates closing between auto and voluntary accounts
No one doubts the positive impact automatic enrollment has had on participation rates.
But the knock on the plan design feature is that it locks participants into a lower savings rate compared to those that voluntarily enroll in plans.
The spread between auto and voluntary contribution rates is closing, Vanguard’s report notes, thanks to the implementation of auto-escalation rates in accord with auto-enrollment.
Two-thirds of auto-enrolled plans have also implemented auto-escalation.
Last year, the average contribution rate for those voluntarily enrolled was 7.1 percent, while the average contribution rate for auto-enrolled employees was 6.7 percent.
In 2010, the spread was 2.3 percent.
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4. Participation rates, savings rates remain steady
The participation rate was 82 percent last year, unchanged from 2017. Plans with automatic enrollment have a participation rate of 91 percent, compared to just 60 percent with plans that use voluntary enrollment.
The average employee deferral rate was 6.9 percent, largely unchanged for the time Vanguard has tracked the metric.
When accounting for employer matches, the average 15-year savings rate was 10.6 percent, about where it has been in previous years. The total savings rate has never eclipsed 11 percent in Vanguard plans.
5. Average account balance drops 11 percent
The average account balance last year was $92,148, down 11 percent from 2017.
Equity markets declined by 6 percent last year, partially explaining the drop.
But the drop was also accounted for by converted plans with lower account balances, and wider adoption of automatic enrollment, which results in more plans with lower account balances.
Despite the drop, participants have had a strong run. Of those continuously invested between 2013 and 2018, the median account balance rose 78 percent.
6. Indexing continues to grow
The focus on plan fees continues to drive indexed investment options. In 2018, 63 percent of plans offered a “passive core”—a comprehensive set of low-cost index options that span global equity markets, according to the report.
Large plans are driving the trend, as they are the ones that are most commonly sued for plan mismanagement. Over the past decade, the number of plans offering a passive core has increased by two-thirds. When accounting for TDFs, 80 percent of participants hold indexed equity investments in Vanguard plans.
7. Separating employees favor leaving assets in retirement accounts to cash distributions
Last year, nearly one-third of all Vanguard participants could have taken their savings out of retirement plans because of a recent separation from employers.
But of that group, 81 percent left assets with their former employer, or rolled them into a new company plan or an IRA.
Of the total assets available for distribution, only 4 percent were taken in cash.
8. Auto-enrollment improves savings among lower wage earners
Much of the policy debate around retirement savings focuses on those workers who don’t have access to a workplace savings plan, and lower wage earners who struggle to put money away.
Vanguard’s data shows that automatic enrollment has a heavy impact on the savings rates of lower wage earners.
Of Vanguard’s participants that make between $15,000 and $30,000, 51 percent are enrolled in their employers’ plans.
Of that wage demographic, only 38 percent participate when offered to voluntarily enroll. The number jumps to 79 percent when they are automatically enrolled.
The spread between voluntary and automatic participation narrows as wages increase.
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9. Few are contributing the maximum
Only 13 percent of Vanguard participants contribute the statutory maximum to their retirement accounts.
Those making less than $100,000 rarely do, perhaps because they can’t. For instance, only 6 percent of participants making between $75,000 and $100,000 contribute the maximum.
But the number jumps to 60 percent for those making more than $150,000.
10. Catching up
Nearly all Vanguard plans allow workers age 50 and over to make catch-up contributions.
About 15 percent of eligible participants took advantage of the option.
But the option is difficult to tap. A participant earning $100,000 a year would have to defer more than 20 percent of their income to utilize the catch-up.
Of higher earners making more than $150,000, 60 percent utilized the catch-up contribution.
By share of total assets, Vanguard accounts for nearly 19 percent of the more than $7.5 trillion market; assets in Vanguard plans were more than $1.4 trillion as of the end of the first quarter this year.
The slides that follow look inside the numbers of Vanguard’s DC report. Read more about Vanguard DC plans below. (Photos: Shutterstock)
1. Professionally managed accounts
By the end of last year, 60 percent of participants were solely invested in a single target-date fund, balanced fund, or managed account.
Back in 2004, only 10 percent were; in 2007, just after the enactment of the Pension Protection Act, 20 percent of Vanguard participants were invested in lone professionally managed accounts.
Of the participants enrolled in plans for the first time in 2018, nearly 90 percent were invested in a lone professionally managed option.
By 2023, Vanguard predicts that 80 percent of its participants will be invested in a professionally managed option.
2. TDFs continue their dominance
TDFs are by far the favored professionally managed account option. More than half—52 percent—of all Vanguard participants were wholly invested in a single TDF.
Managed accounts and balanced funds accounted for 4 percent and 3 percent, respectively.
Of the plans that use automatic enrollment, 98 percent use a TDF as the default.
All told, nine in 10 sponsors offered a TDF. Nearly 80 percent of all Vanguard participants are at least partially invested in a TDF.
3. Spread on contribution rates closing between auto and voluntary accounts
No one doubts the positive impact automatic enrollment has had on participation rates.
But the knock on the plan design feature is that it locks participants into a lower savings rate compared to those that voluntarily enroll in plans.
The spread between auto and voluntary contribution rates is closing, Vanguard’s report notes, thanks to the implementation of auto-escalation rates in accord with auto-enrollment.
Two-thirds of auto-enrolled plans have also implemented auto-escalation.
Last year, the average contribution rate for those voluntarily enrolled was 7.1 percent, while the average contribution rate for auto-enrolled employees was 6.7 percent.
In 2010, the spread was 2.3 percent.
Advertisement
4. Participation rates, savings rates remain steady
The participation rate was 82 percent last year, unchanged from 2017. Plans with automatic enrollment have a participation rate of 91 percent, compared to just 60 percent with plans that use voluntary enrollment.
The average employee deferral rate was 6.9 percent, largely unchanged for the time Vanguard has tracked the metric.
When accounting for employer matches, the average 15-year savings rate was 10.6 percent, about where it has been in previous years. The total savings rate has never eclipsed 11 percent in Vanguard plans.
5. Average account balance drops 11 percent
The average account balance last year was $92,148, down 11 percent from 2017.
Equity markets declined by 6 percent last year, partially explaining the drop.
But the drop was also accounted for by converted plans with lower account balances, and wider adoption of automatic enrollment, which results in more plans with lower account balances.
Despite the drop, participants have had a strong run. Of those continuously invested between 2013 and 2018, the median account balance rose 78 percent.
6. Indexing continues to grow
The focus on plan fees continues to drive indexed investment options. In 2018, 63 percent of plans offered a “passive core”—a comprehensive set of low-cost index options that span global equity markets, according to the report.
Large plans are driving the trend, as they are the ones that are most commonly sued for plan mismanagement. Over the past decade, the number of plans offering a passive core has increased by two-thirds. When accounting for TDFs, 80 percent of participants hold indexed equity investments in Vanguard plans.
7. Separating employees favor leaving assets in retirement accounts to cash distributions
Last year, nearly one-third of all Vanguard participants could have taken their savings out of retirement plans because of a recent separation from employers.
But of that group, 81 percent left assets with their former employer, or rolled them into a new company plan or an IRA.
Of the total assets available for distribution, only 4 percent were taken in cash.
8. Auto-enrollment improves savings among lower wage earners
Much of the policy debate around retirement savings focuses on those workers who don’t have access to a workplace savings plan, and lower wage earners who struggle to put money away.
Vanguard’s data shows that automatic enrollment has a heavy impact on the savings rates of lower wage earners.
Of Vanguard’s participants that make between $15,000 and $30,000, 51 percent are enrolled in their employers’ plans.
Of that wage demographic, only 38 percent participate when offered to voluntarily enroll. The number jumps to 79 percent when they are automatically enrolled.
The spread between voluntary and automatic participation narrows as wages increase.
Advertisement
9. Few are contributing the maximum
Only 13 percent of Vanguard participants contribute the statutory maximum to their retirement accounts.
Those making less than $100,000 rarely do, perhaps because they can’t. For instance, only 6 percent of participants making between $75,000 and $100,000 contribute the maximum.
But the number jumps to 60 percent for those making more than $150,000.
10. Catching up
Nearly all Vanguard plans allow workers age 50 and over to make catch-up contributions.
About 15 percent of eligible participants took advantage of the option.
But the option is difficult to tap. A participant earning $100,000 a year would have to defer more than 20 percent of their income to utilize the catch-up.
Of higher earners making more than $150,000, 60 percent utilized the catch-up contribution.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
