Early look at How America Saves 2021 reveals positive trends

January 28, 2021

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Over the last two decades, continued adoption of automatic enrollment has increased employee savings and the use of professionally managed allocations. Thoughtful retirement plan designs leveraged automatic solutions, from both a savings and investment perspective, helping to improve participant outcomes. These and other trends are chronicled in How America Saves, our annual analysis of retirement savings behavior, which will mark its 20th edition this summer.

What follows is a preview of How America Saves 2021—an examination of retirement plan data from nearly 5 million DC plan participants across our recordkeeping business. It captures how plan participants and sponsors reacted to the COVID-19 pandemic. It shows many of the positive trends documented over the past 20 years in How America Saves continued throughout a volatile and uncertain 2020. We believe this information, as always, can help plan sponsors optimize their plan design.

The pandemic in perspective

The COVID-19 pandemic has dramatically impacted the global economy, increased market volatility, and stoked several forms of financial and nonfinancial uncertainty. But despite all that, our initial metrics reveal that participant retirement plan behaviors have remained largely unaffected.

By year-end 2020, median account balances increased by 30%. Participants did change (increase and decrease) their deferral amounts, although they remained largely positive and quite similar to previous years. The proportion of participants in professionally managed allocations remained at 62% and 76% of participants maintained a balanced strategy in line with the beginning of the year. And while participants were more active in trading because of the additional market volatility, nearly 9 of 10 participants did not trade in 2020.

Loan issuances declined in 2020, as did both hardship and nonhardship withdrawals, compared with 2019. And while a small percentage of participants withdrew a portion of their retirement savings through provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the vast majority of participants have not accessed their retirement plans during these difficult times. This data underscores that participants are resilient and maintain a long-term approach to retirement savings.

A deeper dive into the data

Account balances
Account balances are widely accessible on statements and websites and are often cited as participants' principal tool for monitoring investment results. While sharp declines in the equity markets last spring impacted many participant account balances in the short run, the average account balance as of year-end 2020 was $129,157, a 21% increase from year-end 2019. The median balance was $33,472, a 30% increase since year-end.

In typical DC plans, employees are the primary source of funding. Therefore, how participants manage their payroll deferral percentages significantly affects their retirement savings. Over the course of 2020, 16% of participants increased their payroll deferral percentage, while 8% decreased their deferral rate. And an additional 25% of participants had their deferral percentage increased from an annual automatic increase. These behaviors are very much in line with previous years.

Participant payroll deferral percentages remain largely steady

Participant payroll deferral percentages

In addition, while employee contributions are the main source of funding, employer contributions can play an important role in DC plans. The economic shock of 2020 caused many firms to address challenging financial decisions, some of which may have been associated with their retirement plans. During 2020, 7% of Vanguard-administered plans either reduced or suspended their employer contribution, while 93% of plans continued with the current employer contribution design.

The percentage of all participant assets invested in equities as of year-end 2020 stood at 72%, down one percentage point from 2019 year-end.

Seventy-seven percent of plan contribution dollars were invested in equities during 2020, in line with total 2019 contributions. Six of every 10 dollars contributed throughout the year were invested in target-date funds (TDFs).

Professionally managed allocations and portfolio construction
Underlying the improvements in participant investment allocations is the rising prominence of professionally managed allocations. Participants with professionally managed allocations have their entire account balance invested solely in a single target-date, target-risk, or traditional balanced fund, or in a managed account advisory service.

As of year-end 2020, 62% of Vanguard participants were invested in a professionally managed allocation, in line with year-end 2019.

This rising use of professionally managed allocations is also contributing to a reduction in portfolio construction errors. The fraction of participants holding broadly diversified portfolios has steadily risen over the past decade and stood at 76% at the end of the year.

Participants increasingly hold broadly diversified portfolios

Participant increasingly hold broadly diversified portfolios

Participant trading, or exchange activity, is the movement of existing account assets from one plan investment option to another. When participants using the managed account program are excluded, 10% of participants initiated an exchange in 2020, compared with 7% during 2019. While trading increased in 2020, nearly 9 out of 10 participants did not make an exchange.

Additionally, participants who are pure TDF investors benefit not only from continuous rebalancing during volatile markets but are also far less likely to trade when compared with all other investors. Through 2020, only 4% of all pure TDF investors made an exchange, a rate four times lower than all other investors.

Access to plan assets
Before retirement, plan participants may be able to access their retirement savings through a variety of mechanisms. Active participants can often borrow from their account balance and may have the option of hardship or in-service withdrawals.

During 2020, loan use declined by more than 20%. We speculate this decline is partly attributable to a decrease in consumer spending, along with a drop in housing transactions (loans are often used for housing-related expenses).

And overall trends in both traditional hardship and nonhardship withdrawals trended lower in 2020, compared with the previous two years.

In late March 2020, Congress passed the CARES Act, which provided additional financial options for accessing retirement assets, including coronavirus-related distributions (CRDs), for "affected individuals"¹ of COVID-19. Slightly less than 6% of participants initiated a CRD. These distributions have more flexibility compared with traditional plan withdrawals and are exempt from early withdrawal penalties. Therefore, we speculate that participants who met the definition of an "affected individual" most likely opted to use the CRD withdrawal option as opposed to other traditional withdrawal types.

Accessing plan assets before retirement should be a last resort for workers. However, it is important to note that as retirement plans have increasingly implemented automatic solutions in an effort to increase plan use and simplicity, more employees now have an additional resource that may be accessed during an emergency. And while a small fraction of participants have accessed their retirement savings, those participants, who may have faced a financial shock, are better off than those who do not have any retirement savings cushion during this period.

A continued need for increased savings

While the definitive history of COVID-19's impact on retirement savings has yet to be written, the initial analysis of participant behavior through 2020 is encouraging. As plan sponsors continue to implement negative elections and automatic solutions, and human inertia influences decision-making, participant outcomes continue to improve. And while TDF use continues to benefit portfolio allocations, its inherent automatic rebalancing spares participants the emotionally challenging task of rebalancing on their own.

And although only a small portion of participants accessed their plan assets through CARES Act provisions, even a small number of participants taking such action signals the need for greater emergency savings for workers. This need can be addressed with a well-designed advice offer that meets a full range of personalized financial goals, including debt management and emergency savings.

Participants have been resilient—and remain so. As many workers face a variety of financial uncertainties, the overall behavior in retirement plans remains steady, and the majority of participants continue to maintain a long-term view with their retirement plans.

We hope this preview of How America Saves 2021 helps plan sponsors better prepare their participants for retirement. Expected this summer, the full report will include more data and additional insights. Recommended plan actions will also be identified by Vanguard Strategic Retirement Consulting (SRC) group. SRC helps DC plan sponsors optimize their plan design, develop fiduciary best practices, and ensure regulatory compliance. SRC also shares insights on investor behavior and collaborates on strategic communications.

For more information, please contact your relationship manager.

¹ An "affected individual" is defined by the CARES Act as someone:

  • Who is diagnosed with COVID-19 by a CDC-approved test,
  • Whose spouse or dependent is diagnosed with COVID-19 by a CDC-approved test, or
  • Who experiences adverse financial consequences as a result of being quarantined; being furloughed, laid off, or having work hours reduced as a result of COVID-19; being unable to work due to lack of child care due to COVID-19; closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  • Other factors as determined by the Treasury Secretary.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.
  • There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Diversification does not ensure a profit or protect against a loss.