Perspectives : DC Retirement | January 02, 2025

How America promotes employee financial wellness

Read time: 5 minutes

Part 4 in the “How America...” series

We begin the new year with the final article in our How America Saves series and a celebration of Financial Wellness Month.

Vanguard research has defined financial wellness as the ability to meet current and near-term financial obligations while staying on track to achieve future goals.¹ One sign that many 401(k) plan participants are tracking toward financial wellness in retirement comes from How America Saves 2024. In 2023, the average total participant contribution rate—which includes both employee and employer contributions—reached nearly 12%.² That rate has never been higher.

Financial wellness experiences—along with actionable advice and enduring investments—are a key component of Vanguard Well on Your Way™, our financial well-being program that offers participants integrated and comprehensive support all along their path to retirement.

Actionable financial advice

In 2023, 43% of Vanguard defined contribution retirement plans offered managed account advice; among plans with 5,000 or more participants, 80% offered advice. Seventy-seven percent of all participants had access to advice.

Jeff Clark, the author of How America Saves 2024, says that “participants enrolled in advice tend to be more engaged and demonstrate stronger saving behaviors than their peers, with higher average saving rates. The percentage of plans offering managed account advice has reached an all-time high."

Plan sponsors can benchmark their plans’ advice offerings against those of their competitors by checking out our industry benchmark reports. “Smart plan design features remove barriers while helping workers save more and invest appropriately,” Clark says. “The growth of advice and financial wellness tools encourages the type of investing behavior that can prepare more workers for retirement.”

Enduring investments

Target-date funds (TDFs) can help provide both financial well-being for participants and fiduciary well-being for plan sponsors. TDFs base their portfolio allocations on the participant’s expected retirement date, with allocations growing more conservative as the participant approaches the fund’s target year.

The percentage of plans offering TDFs rose from 88% in 2014 to 96% in 2023. At year-end 2023, nearly all participants were in plans offering TDFs; 83% of participants used TDFs when offered; and 58% of participants were invested in a single TDF. ³ The industry benchmark reports also present data on TDF availability and use.

The benefits of strong retirement plan design

Plan design features like TDFs and advice can strengthen retirement plans, and “retirement plan designs have never been stronger,” Clark says. “When we look at automatic enrollment adoption, enrollment defaults, employer contributions, and access to professionally managed allocations, we see many impressive trends. The 401(k) plan is evolving, making it easier for employees to save for retirement and helping to improve their financial wellness.”

Those enhancements have improved participant behavior. “Participation and saving rates have reached all-time highs,” Clark says. “More workers are participating in their employer’s plan, saving more, and investing in age-appropriate allocations.”

Clark has identified five plan design features that plan sponsors can implement to help participants reach the recommended saving rate of 12% to 15%:

1. Offering immediate eligibility, which helps participants maximize their benefits from their first day on the job.

2. Automatically enrolling employees in the plan, which unquestionably helps improve participation.

3. Setting an enrollment default rate equal to or more than the maximum employer match value, which helps participants maximize their retirement benefits.

4. Providing generous employer contributions, which helps increase retirement savings.

5. Offering a TDF default and the ability for participants to engage with in-plan advice, both of which can help improve participants’ portfolio construction.

“Strong preparation for retirement boils down to saving enough and investing appropriately,” Clark says. “Automatic enrollment, a strong default rate, an annual escalation feature, generous employer contributions, target-date funds, and advice access can all help participants achieve their retirement goals—and financial wellness.”