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Automatic Plan Features Help Participant Savings Rates Stay Resilient in 2024, Says Vanguard
The average 401(k) deferral rate was 7.7% in 2024—an all-time high and nearly one percentage point higher than the 6.8% rate one decade ago.
Participants’ retirement saving behaviors remained resilient to the economic pressures and uncertainties of 2024, in part because more defined contribution plans than ever are offering automatic features, Roth contributions and professionally managed allocations, according to Vanguard’s latest “How America Saves” report, released today.
Most notably when compared with the 2015 report, plan participation rates improved between 2015 and 2024 among demographic groups with traditionally lower voluntary participation, due to the increased adoption of automatic enrollment. Plans with automatic enrollment had a higher participation rate across all demographics, at 94%, compared with 64% for voluntary enrollment plans.
“We’re still seeing more and more plans continue to adopt [auto-enrollment],” says Jeff Clark, Vanguard’s head of defined contribution research and the report’s author. “[That] … is an incredibly encouraging sign.”
According to Clark, one of the biggest takeaways from this year’s “How America Saves” report is that employers are “making it easier for workers to save at strong saving rates.”
More Services Offered
The average 401(k) deferral rate was 7.7% in 2024—an all-time high and nearly one percentage point higher than the 6.8% rate one decade ago. Among sponsors, 61% now default employees into their plans at a deferral rate of at least 4%, up from 39% of plans that did so in 2014. Meanwhile, 16% of participants increased their payroll deferral percentage, while an additional 29% saw their deferral rate increase via an automatic escalation feature, Vanguard’s data showed. This equals a 45% boost overall in participant saving rates.
More plans have also started offering after-tax, or Roth, contributions, and more plan participants have been taking advantage: 86% of plans offered Roth contributions in 2024, up from 74% in 2020. Among the 95% of larger plans that offered the Roth option, 18% of participants elected it, up from 12% in 2019.
Vanguard also found that plan participants are relying now, more than ever, on professional guidance for their retirement plan investments: 67% of participants invested their 401(k) balances in professionally managed allocations in 2024—a leap from the 9% and 40% who did so in 2005 and 2013, respectively. Most (60%) participants invested in a single target-date or balanced fund, and 7% used a managed account.
Professionally managed investments are typically more diversified than those of participants who make their own choices. A balanced strategy was adopted by 78% of participants in 2024, doubling the 39% that did so in 2005. Furthermore, 2% of participants held no equities, and 2% had at least 20% allocated to company stock.
Clark says he has seen some plans offer more “retiree-friendly” options, as well. In 2024, 68% of plans allowed retirees to set up installments, and 43% allowed for partial withdrawals, the latter up from 27% in 2018.
Vanguard’s “Retirement Distribution Decisions Among DC Participants” report, published in February 2023, stated that when plans permit flexible distributions, retirement-age participants—and their assets—are also more likely to remain in their employer’s plan. The percentage of plans that offer flexible distribution nearly doubled in the five years leading up to 2023, along with an increased demand for retiree-friendly plan designs. The latest “How America Saves” report indicated that plan sponsors have increasingly offered managed account advice services as well: 45% of Vanguard defined contribution plans offered the services in 2024, up from 27% in 2016.
Size Matters
The largest plans—those with at least 5,000 participants—offered managed advice 82% of the time, while the smallest plans—with 500 or fewer participants—offered it much less frequently, at 24%. However, while most participants (79%) fell into plans that offered managed advice, only 9% of participants used it. Usage has remained relatively stable, hovering between 7% and 10% since 2016.
In addition, 76% of plans now allow for immediate eligibility for employee contributions, up from 65% in 2015. Since most participants were a part of larger plans—which were more likely than smaller plans to offer immediate eligibility—86% of participants in the Vanguard data participated in plans offering the option in 2024.
Despite plan design improvements in 2024, Vanguard found that signs of increased financial stress on participants signal that additional plan design and financial wellness features could be utilized. For example, 4.8% of those permitted to take a hardship withdrawal did so in 2024, up from 3.6% in 2023. Though the vast majority (95%) of participants did not take one, challenges remained.
“The No. 1 reason why participants take a hardship withdrawal is to avoid foreclosure or eviction,” Clark says. “I think it really … highlight[s] the importance of financial wellness and not just helping workers … save for retirement.”
What Lies Ahead
Clark predicts an increase in Roth in-plan conversions in the future. He credits this to Section 603 of the SECURE 2.0 Act of 2022, which mandates that plan participants make their contributions on a Roth basis if they made at least $145,000 in the previous year, are older than age 50 and exceed the regulatory deferral limit.
“We’re seeing increased usage [of Roth],” Clark says. “We have a lot of sponsors that are … asking [whether] they should be [considering] these Roth in-plan conversions … to help their participants with improved tax diversification.”
Clark credits not only plan design improvement for positive outcomes, but plan participants, too.
“[When] you look at the data … the resilience [of plan participants] shines through,” Clark says. “There’s no correlation to any underlying economic or market volatility.” Rather, the correlation he sees is that as more plans offer auto-enrollment, participation rates continue to increase.
Vanguard drew data from more than 1,400 qualified plans and nearly 5 million participants for which Vanguard directly provides recordkeeping services. The universe of plan sizes ranged from fewer than 500 participants to more than 5,000.
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