3 tips to enhance retirement success: How America Saves

Jeff Clark, the author of How America Saves 2024, says that a good place to start might be with a How America Saves industry benchmark report. We’ve published 16 industry benchmark reports, covering fields that include finance; technology; manufacturing; professional, scientific, and technical services; and ambulatory health care services. “The appropriate benchmark report will give you a quick aggregate overview of how other plans in your industry are designed and how they influence participant behaviors,” Clark explains.

The benchmark reports contain charts showing average participant balances and deferral rates, automatic enrollment options, and advice services offered. “How America Saves benchmark reports are a great resource in making sure we are offering a competitive plan compared to our peers,” says Brad Plaman, manager, retirement plans, at Dorsey & Whitney LLP.

Does your plan offer automatic enrollment? Clark says that “59% of plans have autoenrollment design, up from 34% just 10 years ago. For plans with at least 1,000 participants, that number goes up to 77%. Both of these are all-time highs.” 

In 2023, 29% of plans that automatically enrolled participants defaulted them to a 6% or higher contribution rate. Sixty-nine percent of plans automatically increased the contribution rate annually. And 98% of plans defaulted their participants into a target-date fund (TDF).¹

“Sponsors and consultants should pay particular attention to their plans’ default contribution rate,” Clark says. “Not too long ago, employers defaulted participants into the 401(k) at 2% or 3% of their pay, and many stayed at that level. Now companies are trying to get workers into the plan and saving more aggressively.”

Participants with professionally managed allocations have their account balances invested in a TDF, a traditional balanced fund, or in a managed account advisory service.

TDFs help participants keep their DC plan investments aligned appropriately with their age. “In 2005,” Clark says, “we found that participants’ equity allocation was a hump-shaped curve, with younger participants allocating conservatively, middle-aged participants holding the highest equity exposures, and older participants having equity exposures similar to younger participants.” 

But in 2023, as the chart above shows, the equity allocation curve of Vanguard DC participants generally sloped downward by age. Younger participants—those with the longest investment horizons—had significantly increased their allocation to stocks. “In 2005,” Clark says, “participants under 25 had allocated only 57% of their portfolios to equities. By 2023, that figure had risen to 88%.”

The designation of TDFs as the most common default investments has helped shift the equity allocation curve, Clark says. “We’ve seen that participants have both been defaulted into TDFs and are choosing them on their own. Both factors are contributing to the shift.”

Financial advice can also help improve participant outcomes. Participants enrolled in advice tend to be more engaged and demonstrate stronger saving behaviors than their peers, including higher average saving rates and more personalized equity allocation based on their risk preferences. “The percentage of plans offering managed account advice is at an all-time high,” Clark says, “and more than 3 in 4 participants now have access to advice.”

• Young workers benefit from retirement plan improvements (article, issued July 2024)
• How America Saves 2024 viewpoints (landing page, updated June 2024)
• More boomers prepared for retirement, but gaps persist (article, issued June 2024)