How America Saves: Plan design has big impact

July 17, 2019

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The power of plan design to help Vanguard Retirement Plan Access™ (VRPA) participants save for retirement is evident in How America Saves 2019: Small business edition. VRPA clients are full-service plan fiduciaries for plans with assets under $20 million.

Small businesses account for 99.7% of all employer firms according to the Small Business Administration (SBA). So how are VRPA clients helping their employees prepare for retirement? Consistent over two years, 77% of VRPA plans provided either an employer match or nonelective contribution, or both. Nearly all VRPA plans have designated a default fund, and 96% had selected a target-date fund option as the default option in 2018.

Change in participation rates

Retirement plans administered by VRPA are divided into two populations: start-up plans, which began within the last three years, and established plans, which began more than three years ago. Altogether, the average VRPA plan has 42 participants and $2.3 million in plan assets.

Since VRPA's 2011 inception, each plan has gone through plan design or review, which speaks to the consistency in annual data. Research shows that plan sponsors and advisors can better prepare employees' retirement readiness through strong plan design. As of 2018, the participant-weighted participation rate—a measure that considers all employees in VRPA plans as if they were in a single plan—was 60%.

Younger and low-income employee trends

Plan participation within small- and mid-sized companies improved with age and job tenure. Only 35% of employees younger than 25 made deferrals to their employer's plan in 2018.

Tenure also has a significant influence on plan participation. In 2018, 44% of employees with less than two years on the job participated in their employer's plan. Employees with tenure of ten years or more had a participation rate of 80%.

Other highlights

  • Among all VRPA plans, 97% of designated QDIAs were target-date funds.
  • VRPA participants saved 7.1% of their income on average.
  • 6 in 10 eligible employees are enrolled in their employer's voluntary savings program across the VRPA universe of participants.
  • VRPA serves 11,300 plan sponsors with 480,000 participants.

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Notes:

  • All investments are 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.