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Study Highlights Professional Management

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The total number of participants invested in a professionally managed allocation has more than doubled from 17% at the end of 2007, according to Vanguard’s recently released “How America Saves” 2013 report. By 2017, Vanguard estimates that 55% of all participants will be entirely invested in a professionally managed investment option.

The annual report notes that in 2012, 36% of all participants in 401(k) retirement plans at Vanguard invested their plan assets in a professionally managed investment option, “dramatically improving their portfolio diversification and potentially making them more financially prepared for retirement compared with participants making investment choices on their own.”

Jean Young, co-author of “How America Saves,” said in a statement that “the number of participants completely turning their portfolio construction over to a professional, or obtaining advice from professionals, is an important trend in the potential future financial security of retirees.”

The study also notes that 27% of all participants in 2012 were invested in a single target-date fund, 6% held a single traditional balanced fund, and 3% used a managed account advisory program. Also, 14% of participants who were offered an investment advice service through their plan adopted one.

In addition, the report points out that average plan account balances rose by 10% in 2012, to $86,212, which reflects “the effect of both ongoing contributions and market returns,” Vanguard says.

For participants with a balance at both the end of 2007 and the end of 2012—the worst five-year period in the markets in most people’s lifetimes—the median account balance grew 67% for the same reasons, Vanguard notes. “Nearly 90% of participants in this group saw their balances rise during this time.”

Indeed, Vanguard says that many participants are “strong savers” in their plan. One-fifth of them saved 10% or more, 11% saved the maximum allowed, and 15% of participants over age 50 made catch-up contributions in 2012. “Taking into account both contributions made by participants and those made by employers to participants’ accounts, the average total savings rate was 10.5% in 2012,” the report notes.

Other highlights of the report are:

  • Fifty-one percent of all participants were invested in one or more target-date funds.
  • Thirty-two percent of Vanguard plans had adopted automatic enrollment, up three percentage points from 2011; more than half of all contributing participants in 2012 were in plans with automatic enrollment; seven in 10 such plans had implemented automatic annual deferral-rate increases; and 97% of automatic enrollment plans defaulted their participants into a balanced investment strategy, with nine in 10 choosing a target-date fund as the default.
  • The Roth 401(k) feature was adopted by 49% of Vanguard plans, and 11% of participants within these plans had elected the option.
  • More participants had access to low-cost index funds. Factoring in index target-date funds, 82% of participants held equity index investments.
  • The percentage of plan assets invested in equities, which stood at 73% in 2007 just after the peak of global stock prices, declined to 66%.
  • Only 12% of plan participants traded within their accounts. On a net basis, participants who traded shifted 1.7% of assets to fixed income, representing small changes to their overall portfolios. Only 1% of all participants abandoned equities altogether.
  • About 30% of all participants could have taken their account as a distribution because they left their employer in 2012 or prior years. The majority of them (82%) preserved their plan assets for retirement by remaining in their employer’s plan or rolling over their savings to an IRA or to a new employer’s plan.

Melanie Waddell contributed to this report.


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