Perspectives : DC Retirement | February 03, 2023

Positive signs in a challenging economy

Read Time: 11 Minutes

A preview of How America Saves 2023

Participant outcomes remained strong as plan sponsors continued to implement automatic solutions and leverage human inertia to influence decision-making, even in the face of the challenging economic environment of 2022. This and other trends will be chronicled in How America Saves 2023, the 22nd edition of our annual analysis of retirement saving behavior. The report will be available in June.
Our initial data highlights that participants generally remained resilient through 2022. While there were signs of financial stress, overall, participants' behavior in retirement plans remained in line with previous years, and most continued to maintain a long-term view. 


Continued adoption of automatic enrollment over the last two decades has increased employee savings and the use of professionally managed allocations. From both a savings and investment perspective, using thoughtful plan designs and automatic solutions has improved participant outcomes.

What follows is a preview of How America Saves 2023—an examination of retirement plan data from nearly 5 million defined contribution (DC) plan participants across Vanguard's recordkeeping business. It highlights several trends documented over the past 20 years and how these trends continued through an uncertain 2022. We believe this information can help plan sponsors continue to optimize their plan design.

2022 in perspective

While certain aspects of COVID-19 appear to be behind us, the pandemic created several economic challenges that continued throughout 2022. Inflation, which reached its highest point in 40 years, remained a concern for policymakers as well as American households. Central banks responded by aggressively increasing interest rates, creating multiple economic challenges. First, the rise in interest rates, and anticipation of additional rate hikes, contributed to significant declines in both the U.S. equity and bond markets. In addition, mortgage rates reached a 20-year high, and relatively strong household and corporate balance sheets, created by increased savings during the pandemic, started to feel the stress of both rising prices and interest rates. But despite this significant uncertainty, our initial metrics reveal that participant retirement plan behaviors remained largely unaffected.


While average account balances decreased by 20% in 2022, primarily driven by negative market performance, participant behaviors mostly remained positive. Nearly 4 in 10 participants increased their deferral rate (either on their own or as part of an automatic annual increase), in line with previous years. The proportion of participants in professionally managed allocations increased to 66%, and 79% of participants maintained a balanced strategy, up slightly from 78% in 2021. And against a challenging market environment with increased volatility, only 6% of nonadvised participants traded, the lowest point in 20 years. 

Loan issuances increased slightly in 2022, and while nonhardship withdrawals were similar to 2021, hardship withdrawals increased moderately, perhaps signaling that some households were facing financial stress. However, recent legislation has made it easier for participants in hardship to access assets, and as automatic enrollment continues to enroll a larger percentage of the workforce, especially those with lower income, a modest increase in hardship withdrawals is not entirely surprising. And it is important to note that more than 97% of participants did not take a hardship withdrawal during this challenging year. This data underscores that participants are generally resilient and maintain a long-term approach to retirement savings, even during uncertain economic times.

A deeper dive into the data

Plan design

As of year-end 2022, 58% of Vanguard plans permitting employee-elective deferrals had adopted an automatic enrollment design, up from 56% in 2021 (Figure 1). Larger plans were more likely to implement automatic enrollment, with 76% of plans with at least 1,000 participants using the feature.

In addition, plan designs continued to improve. Fifty-nine percent of plans with an automatic enrollment design defaulted their employees into the plan at a rate of 4% or higher, a trend that has continued to increase every year. And nearly 7 in 10 plans automatically enrolled employees into an annual escalation feature that increased their deferral percentage.

Figure 1: Automatic enrollment adoption and default trends

Source: Vanguard, 2023

Account balances

Account balances are widely accessible on statements and websites and are often cited as participants’ principal tool for monitoring investment results. As equity and bond markets fell in 2022, average participant account balances decreased by 20% from year-end 2021. The average participant account balance was $112,572 as of year-end 2022, and the median balance was $27,376, a 23% decrease since year-end 2021.


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 2022, 15% of participants increased their payroll deferral percentage, while 9% decreased their deferral rate (Figure 2). And an additional 24% of participants had their deferral percentage increased from an annual automatic increase. These behaviors are very much in line with previous years.

Figure 2: 3-year contribution changes

Source: Vanguard, 2023.


The percentage of all participant assets invested in equities as of year-end 2022 stood at 74%, in line with year-end 2021. 

Seventy-seven percent of plan contribution dollars were invested in equities during 2022, in line with total 2021 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 2022, 66% of Vanguard participants were invested in a professionally managed allocation, up 2 percentage points from year-end 2021 (Figure 3). 

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 79% at the end of the year.

Figure 3:  10-year trend of professionally managed allocations

Source: Vanguard, 2023.


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, only 6% of participants initiated an exchange in 2022, compared with 8% during 2021. Given the uncertainty in the economy, it is remarkable that 94% of participants did not make an exchange throughout the entire year. 

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 2022, only 2% of all pure TDF investors made an exchange, a rate five 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 2022, loan use increased by 9% compared with 2021, although it remains below pre-pandemic levels and is about 25% below the loan initiation rate of five years ago.

Overall, in-service withdrawal activity increased modestly in 2022, compared with 2021. Nonhardship withdrawal activity was generally in line with 2021 activity, while hardship withdrawal activity increased over the year. Throughout 2022, 2.8% of participants initiated a hardship withdrawal, up from 2.1% in 2021. Given that it’s now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase is not surprising. And for a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that otherwise may not have been available without plan-implemented automatic solutions. 

A continued need for financial well-being 

Progress has been made, but there are opportunities for improvement. If plans are not yet utilizing an automatic enrollment design, they should consider it. And for plans with the feature, is it designed to get participants to a 15% total saving rate on its own? Additionally, there are many competing financial priorities that employees are facing, and retirement savings is just one piece of the puzzle. Student loans, health care savings, credit card debt, and emergency savings goals, just to name a few, can be daunting and complex for many workers. Plan sponsors can help support their employees by offering cost-efficient, high-quality advice as well as a platform that provides guidance on their financial well-being—two valuable services that meet participants where they are on their financial journey and help provide personalized solutions for their goals. 

We hope this preview of How America Saves 2023 helps plan sponsors better prepare their participants for retirement. The full report, available in June, 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 Vanguard representative.

Jeffrey W. Clark

Senior Research Analyst, Strategic Retirement Consulting