The 2015 edition of Vanguard’s “How America Saves” study finds plan sponsors and advisers are in general focused on plan fees and bringing meaningful savings to the participants they serve.
The annual study shows more plan sponsors have incorporated a wider range of low-cost index funds into their plans, Vanguard notes. The firm says half of its plan sponsor clients now offer an “index core lineup,” defined as a comprehensive set of low-cost index options that span the global capital markets.
Perhaps more surprising is participants’ willingness to take investment risk through passive investments. Factoring in index-based target-date funds (TDFs), a strong majority (82%) of participants serviced by the firm held some form of equity index investment as of year-end 2014.
Vanguard suggests key high-level metrics of aggregate savings behaviors—such as median and average deferral and contribution rates—remained steady across the client base in 2014. But the firm “sees encouraging signs with respect to the number of participants saving at double-digit rates,” says Jean Young, lead author of the report and a senior research analyst with the Vanguard Center for Retirement Research. “About half of participants in Vanguard-administered defined contribution plans are saving 10% or more.”
However, the study also found that in plans with automatic enrollment, more than 60% enroll at default rates of 3% or less, so there is significant ground yet to cover. Vanguard says its data clearly demonstrates auto-enrollment boosts participation rates, but it can lead to lower contribution rates when default deferral rates are set at too-low levels. The study recommends a target savings rate of 12% to 15%, including employer match.
“Plan sponsors are playing a more assertive role in shaping participant outcomes, and we commend them for their diligent efforts in designing, overseeing and continually improving their plans,” adds Martha King, the newly announced head of Vanguard’s Institutional Investor Group. “At the same time, we share with our sponsor clients an obligation to move the dial on savings rates, and give participants the best chance for investment success.”
Additional findings from the research can be explored here.