Our data highlights that participants have generally remained resilient. Even as many have faced a variety of uncertainties, participants' overall behavior in retirement plans has stayed steady, and most continue to maintain a long-term view.
Over the last two decades, continued adoption of automatic enrollment has increased employee savings and the use of professionally managed allocations. From both a savings and investment perspective, thoughtful plan designs, utilizing automatic solutions, have helped improve participant outcomes. These and other trends are chronicled in How America Saves, our annual analysis of retirement saving behavior that enters a third decade of industry coverage with its 21st edition this summer.
What follows is a preview of How America Saves 2022—an examination of retirement plan data from nearly 5 million defined contribution (DC) plan participants across Vanguard's recordkeeping business. It highlights several positive trends documented over the past 20 years and how these trends have continued throughout an uncertain environment in 2021. We believe this information, as always, can help plan sponsors optimize their plan design.
2021 in perspective
The COVID-19 pandemic maintained its grip on many parts of the economy. And while continuing to recover from 2020, the economy faced prominent headwinds in 2021 that stoked several forms of uncertainty. Inflation increased to its highest point in decades. Supply-chain challenges tempered economic growth. And a tightened labor market continued to test employers while employees left their jobs in record numbers—either changing jobs or leaving the workforce entirely. But despite this uncertainty, our initial metrics reveal that participant retirement plan behaviors remained largely unaffected.
By year-end 2021, average account balances increased by 10%. Although participants did change (increase and decrease) their deferral amounts, rates remained largely positive like previous years. The proportion of participants in professionally managed allocations increased to 64%, and 78% of participants maintained a balanced strategy, up from 76% in 2020. And while they were more active in trading in 2020 because of additional market volatility, only 8% traded in 2021, down from 10% in 2020.
Loan issuances increased slightly last year, although overall withdrawals were down compared with 2020, as expected with the expiration of the CARES Act. Most participants did not access their retirement plans during 2021. This data underscores that participants are resilient and maintain a long-term approach to retirement savings.
A deeper dive into the data
As of year-end 2021, 56% of Vanguard plans permitting employee-elective deferrals had adopted an automatic enrollment design, up from 54% in 2020. Larger plans were more likely to implement automatic enrollment, with 75% of plans with at least 1,000 participants using the feature.
In addition, plan designs continued to improve. As of year-end, 58% of plans with an automatic enrollment design defaulted their participants into the plan at a rate of 4% or higher, a trend that has continued to increase every year. And 7 in 10 plans automatically enrolled participants into an annual escalation feature, which increases their deferral percentage each year.