Auto Designs Continue to Gain Ground — With Some Plans
A new survey finds that, among plans automatically enrolling participants, 7 in 10 use all three features of an autopilot program (auto enroll, contribution acceleration, and qualified default investment alternative (QDIA)), but the adoption rate varies by plan size.
According to “How America Saves 2016
,” based on participant data record-kept by Vanguard, by the end of 2015, more than a third of the participants had joined their plan under automatic enrollment, and 63% of new plan participants were enrolled via automatic enrollment last year. Perhaps more significantly, approximately half of these plans are now “sweeping” eligible non-participants, not just new participants.
While 41% of Vanguard plans had embraced automatic enrollment, the rate varied widely by plan size: 60% of the largest plans had done so, compared with just 26% of plans with fewer than 500 participants. Among plans that use automatic enrollment, 7 in 10 use auto enroll and auto escalate, and invest those contributions in some kind of QDIA/balanced account solution.
While 3% remains the most common automatic enrollment default rate (48% in 2015), a growing number of plans are opting for higher rates: In 2015, 16% of plans had chosen rates of 6% or more (versus 7% in 2006), while another 11% had chosen 5%, and 16% opted for 4%.
While higher income individuals were more likely to contribute to their employment-based plan, 42% of workers making less than $30,000 year chose to do so (though at an average deferral rate of just 4.4%), as did 64% of those making $30,000-$50,000 (with an average deferral of 5.5%).
Those making more than $100,000 had an average deferral rate of 8.3%. Across all income levels, women were more likely to participate than men.
One in five participants had a deferral rate of 10% or higher in 2015. Only 12% saved the statutory limit of $18,000 in 2015 ($24,000 for those age 50 and older), and in the 97% of plans that offered catch-up contributions for those age 50 or older, only 16% took advantage of this option. One third of those making more than $100,000 contributed the maximum allowed.
The average number of investment funds was basically unchanged: 18.9 funds in 2011 to 18.1 in 2015. Similarly, while participants used an average of 3.2 funds in 2011, they used just 2.8 in 2015.
Nine out of 10 plan sponsors in Vanguard’s record keeping clients offered TDF at year-end 2015, up 14% compared with year-end 2010, and nearly two-thirds (64%) designated a qualified default investment alternative (QDIA) in 2011, a number that had risen to 77% in 2015.
At year-end 2015 about half of all participants record-kept by Vanguard were solely invested in some kind of automatic investment program, such as a managed account or target-date fund. As recently as 2010, that was just 29%, and Vanguard estimates that by 2020 that will rise to 68%. More than 4 in 10 (42%) were invested in a single TDF, 2% were in a balanced fund, and another 4% used a managed account, according to the report. Among new plan entrants, 8 in 10 were invested in one of these solutions.
Roth, Hardship, Loan Rates
The number of plans offering Roth contributions has risen to 60% from 46% in 2010, though the number offering after-tax contributions has barely budged: 19% offered that option in 2010, and in 2015 just 18% did. Participant utilization of the Roth option (when offered) nearly doubled; 9% took advantage in 2010, 15% did so by 2015. As for after-tax contributions, while 7% took advantage in 2010; by 2015 just 5% were.
The number of plans offering loans was basically unchanged: 75% in 2011 and 78% on 2015. Ditto participant utilization: 18% of participants had an outstanding loan in 2011, and in 2015 just 16% did.
Hardship withdrawals were offered by 81% of plans record-kept by Vanguard in 2011 and used by 4% of plan sponsors when offered. By 2015, 84% of plans offered that option, and 3% of participants utilized them.
In 2015 nearly half of plans immediately vested participants in employer matching contributions.