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June 11, 2021 at 02:50 PM
What You Need to Know
- Despite last year's market turmoil, features like automatic enrollment helped participants save for retirement and focus on the long term.
- Target date funds tamped down frequent trading.
- Annual automated deferral increases helped participants save 20%-30% more after three years than employees without automatic increases.
Adoption of defined contribution plan features such as target date funds, automatic enrollment and automatic escalation and helped more participants save for retirement and stay focused on the long term, even in the wake of last year’s unprecedented market turmoil, according to Vanguard’s most recent edition of How America Saves.
According to the report, 95% of plans offered target date funds — which offer a risk-adjusted, all-in-one portfolio solution — at the end of 2020, up 13 percentage points from 2011, and nearly all Vanguard participants were in plans that offered them.
Eighty percent of all participants used target date funds, with two-thirds having their entire account invested in just one.
The report said participants’ increasing use of target date funds led to a 75% decrease in extreme equity allocations among participants over the last 15 years.
Target date funds tamped down frequent trading. Only 4% of participants holding a single target date fund made a trade last year.
According to the report, automatic enrollment helped employees save 50% more for retirement than those at companies offering voluntary enrollment.
Annual automated deferral increases resulted in participants saving 20% to 30% more after three years than employees without automatic increases.
