Record-High Participation in Retirement Plans

Vanguard’s annual look at the performance of nearly five million defined-contribution plan participants shows encouraging results.

While overall participation rates are impressive, Vanguard suggests that participants should ideally save between 12% to 15% of their pay to meet their retirement objectives. Surprisingly, only about 20% of participants require a modest increase of just 1% to 3% in their saving rate to reach their target. One notable finding is the consistent increase in automatic enrollment over the past 15 years. By the end of 2022, 58% of plans had adopted autopilot components, including employee-elective deferrals.

The report also highlights improvements in participant portfolio construction. In 2022, 79% of participants adopted a balanced investment strategy. This indicates that participants are becoming more aware of the benefits of a diversified investment approach.

Income played a significant role, with lower participation rates observed among employees earning less than $15,000 compared to those earning over $150,000. Additionally, participation rates were lower among younger employees, while higher rates were observed among employees between the ages of 35 and 64. On average, Vanguard participants saved 7.4% of their income in their employer’s plan. Furthermore, 16% of eligible participants utilized catch-up contributions in 2022, indicating a strong adoption of the feature allowing higher contributions for individuals aged 50 and older.

In terms of asset allocation, a high percentage of plan assets in 2022 were invested in equities, with balanced strategies comprising a significant portion. On average, participants allocated 77% of their assets to equities.

Source: “How America Saves 2023,” 22nd Edition; Vanguard, June 2023.