June 26, 2012
--- One-third of all 401(k) plan
participants in plans recordkept by Vanguard invested their entire
account balance in a professionally managed asset allocation and
investment option in 2011. ---
According to Vanguard’s How America Saves 2012
report, 24% of participants were in a single target-date fund (TDF); 6%
in a single traditional balanced fund, and 3% in a managed account
advisory program. The total number is up from 9% at the end of 2005. In
addition, in 2011, a total 18% of participants took an extreme position
in equities, holding either 100% in equities (10% of participants) or
no equities (8%), compared to 34% who did so in 2005.
much of the growth of these programs is the soaring adoption of TDFs,
Vanguard contends. Eighty-two percent of plan sponsors offered
target-date funds in 2011, up from 28% in 2005. Forty-seven percent of
all participants use TDFs. While the growth of these funds is frequently
attributed to their designation as the default investment
in automatic enrollment plans, many participants are voluntarily
choosing TDFs. In plans with voluntary enrollment, 48% of participants
are invested in TDFs.
believes the surge of TDF usage will continue to influence the adoption
of professionally managed allocations. “Largely because of the growing
use of target-date options, we anticipate that 55% of all participants
and 80% of new plan entrants will be entirely invested in a
professionally-managed allocation by 2016,” said Jean Young, chief
author of How America Saves.
annual Vanguard report found in 2011, the plan participation rate was
76%, unchanged from 2010. Automatic plan enrollment continues to rise.
In 2011, 29% of Vanguard plans had adopted automatic enrollment, up 2
percentage points from 2010. Employees in plans with an automatic
enrollment feature at the end of 2011 had an overall participation rate
of 80% compared with a participation rate of only 60% for employees in
voluntary enrollment plans. Seven in 10 automatic enrollment plans have
implemented automatic annual deferral rate increases, up from three in
10 in 2005.