Vanguard’s recent research suggests that plan design influences participant behaviors. This holds true whether the goal is to nudge participants toward higher savings rates, to create more optimal asset allocations, or to encourage participants to remain invested in a plan during retirement. These findings were supported in part by Vanguard’s How America Saves 2023, an annual research report that tracks the saving behaviors of nearly 5 million defined contribution (DC) plan participants across Vanguard’s business.

“Our research has found that retirees are more likely to remain in a plan that offers flexible distribution options,” said Jeffrey W. Clark, lead author of the report and a member of the Vanguard Strategic Retirement Consulting team. “We’ve known for a while that plan design impacts the accumulation phase. What we’re discovering now is that it impacts the decumulation phase as well.”

There are certain advantages to staying in an employer-sponsored retirement plan, even during those golden years. Participants can maintain access to institutional pricing, fiduciary oversight, and, potentially, a high-quality, cost-effective advice solution.

Plan sponsors increasingly recognize the importance of these plan benefits for retirees and are looking for ways to make their plans more retiree friendly.

“We're seeing many more plans that offer partial distributions, installments, and other flexible ways to help accommodate retirees after they leave their nine-to-five,” said Clark. “At the same time, we’re seeing that retirees are about 20% more likely to remain in a plan that offers these flexible distribution options.”

In 2022, 65% of plans allowed retirees to take installment payments, and 39% of plans allowed for partial withdrawals, up from 24% in 2017.

A growing number of plans are allowing separated participants to take partial, ad hoc distributions. For retirees, this option allows a plan to be used directly as a flexible source of income and withdrawals. (Those under age 59½ are subject to a 10% early withdrawal penalty.) Without this feature, terminated participants must either withdraw or roll over an entire account balance to access funds.

While asset retention is undoubtedly beneficial to plan sponsors, maintaining retirement plan assets is often just as beneficial to plan participants. That’s particularly true when plan sponsors intentionally design a plan with outcome-enhancing features such as automatic enrollment and automatic escalation, access to advice, and robust distribution options.

• Vanguard reports record 401(k) participation (press release, issued June 2023)
• How America Saves 2023 (115-page PDF, issued June 2023)
• SECURE 2.0 is a step forward for retirement planning (article, issued January 2023)