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June 11, 2019 at 02:10 PM
Since the U.S. Congress passed the Pension Protection Act in 2006, plan sponsors have increasingly used plan design to influence employee retirement savings behavior, with positive outcomes.
Vanguard’s How America Saves 2019 report, released Tuesday, finds that increased adoption of automatic savings features has helped more plan employees to save at near optimal levels and do so more effectively.
According to the report, adoption of automatic enrollment has tripled since the end 2007. At year-end 2018, 48% of Vanguard plans had adopted automatic enrollment and 66% of new plan entrants were enrolled via automatic enrollment.
Including contributions from both employees and employers, the average 15-year total participant contribution rate last year was 10.6% and the median was 9.8%. Two-thirds of auto-enrollment plans have implemented automatic deferral rate increases.
At the end of 2018, 52% of all participants were invested in a single target date fund, 3% held one other balanced fund and 4% used a managed account program.
Vanguard said these professionally managed investment portfolios improved portfolio diversification compared with those in which participants made their own choices.
Not only that, but extreme allocations have decreased with increased use of target date funds and other professionally managed portfolios. Just a tenth of participants in the report had taken an extreme position: 6% held 100% equities, and 3% held none.
“Our research, including How America Saves, has shown plan sponsors have a continued commitment to improving plan design for participants, which has led to positive results — increased participation, savings rates and improved portfolio construction,” Martha King, managing director of Vanguard’s institutional investor group, said in a statement.
