A new report from the Vanguard Center for Retirement Research indicates that during the recent equity market decline, the proportion of defined contribution plan participants who decreased or stopped contributions rose; however, the percentage of participants who increased contributions still exceeded those decreasing or stopping.
In the analysis of more than one million participants in nearly 1,200 plans administered by Vanguard, the researchers noted that during the 2006 to 2008 period, an average of seven in 10 participants made no changes to their elected contribution rates in a given year. These participants tend to be older, more tenured, and have higher DC account balances, the report said.
On average, the data showed, one in five participants increased their plan deferral rates each year during the period. Those who increased their rates tend to be newly tenured participants with low account balances.
More than half of these participants increased their deferral rate by 1%. The researchers said this is likely because of the growing adoption of automatic annual increases among DC plans.
On average, 7% of participants decreased plan contribution rates each year during the period. That group typically consisted of younger, newly tenured participants with higher account balances and high deferral rates (11% to 12%) who reduced their contribution rates by half, according to the report.
An average of 3% of participants stopped contributions each year during the three-year period. Those tended to be younger and have low account balances.
Changes in the Last Year
Data show that during the recent market decline, the percentage of participants who stopped contributions to their defined contribution plans rose from 2% to 3%, and those who decreased contributions rose from 6% to 10%, according to the report.
However, the report notes that even during the volatile market climate of 2008, more participants chose to increase (19%) rather than decrease (10%) their deferral rates.
While the median contribution rate of participants remained unchanged at 6% in 2009, the average dropped to 8.4% from around 8.8% in the prior three years.
Over time, the number of participants who increase contributions has remained relatively unchanged, but the report said the amount by which participants increase contributions decreased from an average 4% in 2006 to only 2.9% in 2008. During this same period, the average amount by which participants decreased their deferral rose slightly from 6.2% in 2006 to 6.4% in 2008.
The Vanguard Center for Retirement Research report can be accessed here.