Data & Research March 6, 2025

Vanguard Credits Strong Plan Design and Markets for Improved Account Balances

With more defined contribution retirement plans offering automatic features and increasing default deferral rates, Vanguard found that participant outcomes remained strong in 2024.

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Driven primarily by positive market performance, account balance averages increased by 10% in 2024, and 45% of participants increased their deferral rate—either on their own or as part of an automatic annual increase—an all-time high since Vanguard started tracking this metric in 2019,  according to a preview of Vanguard’s “How America Saves 2025” report

“Plan designs have never been stronger,” says Jeff Clark, head of defined contribution research at Vanguard. “What we’ve noticed is that over the last 20 years, the percentage of plans adopting automatic enrollment has increased every year, and last year was not an exception.”

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As of year-end 2024, 61% of Vanguard plans that allowed employee-elective deferrals had adopted automatic enrollment. Larger plans—those with at least 1,000 participants—were more likely to implement automatic enrollment, with 78% using the design.

In addition, with automatic enrollment defaulted their employees into the plan at a rate of at least 4%, and Vanguard found that default rates have continued to increase every year.

Investing Trends

On the investment side, 67% of participants now have a professionally managed allocation, which Clark says is up from 45% in 2014. The majority of those invested in a professionally managed allocation are in target-date funds, with 60% of participants in pure TDFs and 7% using an in-plan managed account.

Clark says overall advice and managed account usage has been relatively flat compared with the previous year.

“But it’s also important to remember that each year, more plans are offering advice,” Clark says. “Sometimes it takes [time] to organically grow participants using advice, so that is a number that we do think will start to increase in the coming years, as there’s more stability and plans [have been] offering advice for a longer period of time.”

At the end of 2024, nearly 80% of participants had access to managed account advice services, according to Vanguard.

Vanguard also noted that participant trading, or exchange activity, was low last year, with only 5% of participants initiating an exchange in 2024, similar to 2023’s all-time low. Clark says overall participant trading has been decreasing over the last 20 years, much of it correlated with the increase of pure-TDF investing.

Alight Solutions similarly found in the fourth quarter of 2024 that retirement investors’ trading was light following a post-election bump. However, the late stock stumble, coupled with the Federal Reserve’s interest rate cut, fueled increased trading in December.

Hardship Withdrawals

The Vanguard report preview also revealed that hardship withdrawal activity increased in 2024, with 4.8% of participants initiating a hardship withdrawal, up from 3.6% in 2023.

Clark notes that one reason for the increase in hardship withdrawals could be because as more plans are offering auto-enrollment, it can disproportionately help lower-income workers save for retirement. These are also workers who tend to have liquidity restraints and may need to take a hardship withdrawal, Clark says.

He adds that the distribution process itself has been streamlined, and there has been increased financial stress on individuals over the last few years.

“Given higher interest rates, stubborn inflation [and] rising household debt, hardship withdrawals may serve as a bit of a safety net for some participants,” Clark says.

Clark says there the increase in hardship withdrawals was particularly notable in the second half of 2024, largely due to natural disaster declarations that enable participants to take out money to repair homes following natural disasters.

In terms of plan loans, 13% of participants had a loan outstanding at the end of 2024, in line with 2023 data.

“I think that this trend highlights the importance of just overall financial wellness and certainly the benefits of having an emergency savings fund that would help to cover some of these unplanned expenses,” Clark says.

The full “How America Saves” report will be released in June.

Compliance March 6, 2025

PPL Corp. Agrees to Settle Participant Lawsuit Over TDFs for $8.2M

Workers at the energy company claimed that PPL included underperforming target-date investments from Northern Trust in four of its retirement plans.

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PPL Corp., an energy company headquartered in Allentown, Pennsylvania, has agreed to an $8.2 million class action settlement with workers who alleged the company violated the Employee Retirement Income Security Act of 1974 by including “underperforming” target-date funds in four of PPL’s retirement plans.

The settlement will cover all participants (and their beneficiaries) in the four retirement plans between 2016 and 2020 who invested in a Northern Trust Focus Fund through an individual retirement plan account, according to the agreement.The gross settlement fund will pay for administrative expenses, $20,000 service awards for each of the six named plaintiffs and attorneys’ fees and costs.

Schlichter Bogard LLP is representing the current and former participants involved in the lawsuit, which was initially filed in 2022 in the U.S. District Court for the Eastern District of Pennsylvania.

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PPL selected Northern Trust Focus Funds as the plan’s TDF investment option in 2013, and the plaintiffs alleged that, since their inception, the Focus Funds consistently underperformed similar funds. Northern Trust, however, as the investment manager, was not named as a defendant in the lawsuit.

U.S. District Judge Mia Roberts Perez had denied PPL’s motion to dismiss the case, Binder et al. v. PPL Corp. et al., in March 2024, but also stated that the plaintiffs’ claims were limited to “breaches that occurred from January 12, 2016 and thereafter.” As a result, Perez stated that “[d]efendants’ 2013 selection of the Focus Funds may not constitute a breach in itself, and the Court will disregard allegations that suggest the opposite.”

The plaintiffs also claimed that from 2016 to 2020, PPL selected and caused the plan to pay higher-cost shares of the Focus Funds when “identical, lower-cost shares were available.” PPL argued the plaintiffs had failed to create a “meaningful benchmark,” but Perez sided with plaintiffs, stating that PPL’s argument in the motion to dismiss was “displaced.”

The suit named the PPL Employee Savings Plan, PPL Deferred Savings Plan, PPL Employee Stock Ownership Plan and the LG&E and KU Savings Plan, all overseen by the same fiduciaries.

In June 2024, PPL Corp. moved for summary judgement, and the court denied the motion in December 2024. The parties reached the settlement agreement on January 14, and it was eventually signed on February 28.

In a memorandum in support of the settlement agreement, the plaintiffs requested that the court schedule a final fairness hearing for the purpose of receiving evidence, argument and any objections to the settlement agreement. The hearing is requested to be held no later than June 27.

Following the fairness hearing, the court must grant a final approval of the settlement.

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