Vanguard Issues New Profile of Participant Trends In 401(k) Plans of Eight Industries

VALLEY FORGE, Pa.--(BUSINESS WIRE)--Americans’ retirement readiness has been a focus of attention in the last few years, particularly after the severe stock market downturn of 2008-2009. New industry reports from Vanguard show that employees of utility companies who participated in their 401(k) or other defined contribution plan at Vanguard in 2010 tended to save more in their plans, participants in small ambulatory health care firm plans invested more of their plan assets in target-date funds, and participants in the plans of large mining companies had the highest average account balances.

The findings are part of Vanguard’s How America Saves 2011, an annual report that is a widely used barometer of retirement-planning trends. Using 2010 data, How America Saves 2011 looks at the overall patterns of more than 3 million participants in plans recordkept at Vanguard.

For the first time, supplemental industry reports to How America Saves analyze the behavior of plan participants in eight industries, including the ambulatory health care; finance and insurance; information services; legal services; manufacturing; mining, oil and gas extraction; technology; and utility industries. Plan sponsors in these industries can use a new benchmarking tool to compare their plan data with others in their industry and Vanguard plans overall.

Here are notable trends in participant behavior across these industries:

• Plan participation. The plans of small utility firms (fewer than 1,000 employees and 92% participation rate) and large mining companies (more than 1,000 employees, 88% participation rate) had the best participation among the industries in the report. Vanguard plans as a whole had a 74% average participation rate.
• Auto enrollment. Vanguard research has found that more employers (plan sponsors) are adopting automatic enrollment plans as a way to boost participation among employees. Auto enroll plans can have a variety of features. Besides the actual automatic enrollment, employers can choose to include an automatic annual increase in the payroll deferral rate (contribution rate) for participants and can choose to automatically earmark participant contributions to a default investment, such as a target-date fund, if they don’t choose an investment themselves. Employees always have the ability to opt out of the entire auto enroll program or individual features. Auto enroll plans were far more prevalent at large manufacturing companies (more than 1,000 employees) than at any other type of company in the report and Vanguard plans broadly. Sixty-seven percent of large manufacturing companies (more than 1,000 employees) had an auto enroll plan versus 24% for all Vanguard plans. At 6%, small ambulatory health care firms (fewer than 250 employees) were least likely to have an auto enroll plan.

• Contribution rates. In a typical DC plan, employees are the main source of funding, contributing to their plan via payroll deferrals. On average, participants in the plans of both small and large utilities (more than 1,000 employees) saved at a higher rate than their counterparts in the other industry plans as well as all Vanguard plans. Their 9.0% and 8.2% average contribution rate, respectively, surpassed the 6.8% average contribution rate for Vanguard plans in aggregate. The plans of large manufacturing companies lagged with a 6.5% average contribution rate.
• Target-date funds. Target-date funds (TDFs), which are broadly diversified (stock and fixed income) funds that become more conservative the closer an investor gets to the fund’s stated retirement date, have increasingly become a dominant retirement investment option. Large plans tended to offer TDFs more so than smaller plans; in the lead was the 93% of large ambulatory health care firms that offered TDFs, far surpassing the 79% of all Vanguard plans offering the funds. The standout in terms of small industry plans was utilities, 94% of whom offered TDFs. However, among participants using TDFs, those in the smaller plans covered by the reports usually invested more of their assets in the funds. For example, 62% of participant assets in small ambulatory health care firm plans were invested in TDFs, compared to the 41% of assets invested in TDFs by participants across all Vanguard plans offering the funds.
• Account balances. At $237,081, the average account balance of participants in plans of large mining companies was significantly higher than the average account balance of participants in Vanguard plans collectively ($79,077). In contrast, the lowest average account balance was the $63,697 for participants in large information services company plans (more than 1,000 employees). It is important to note, however, that current plan balances are only a partial measure of retirement preparedness for many participants. A more accurate reflection of retirement readiness includes the participant’s plan balance in addition to age, plan tenure, expected Social Security income and assets that may be in personal savings, other employer plans, or a spouse’s retirement plan.

The How America Saves 2011 industry benchmark reports are based on Vanguard’s 2010 recordkeeping data for nearly 2.2 million participants in 1,552 qualified defined contribution plans offered by companies in the ambulatory health care; finance and insurance; information services; legal services; manufacturing; mining, oil and gas extraction; technology; and utility industries.

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 a target-date fund is not guaranteed at any time, including on or after the target date.

About Vanguard

Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management companies. Vanguard manages more than $1.7 trillion in U.S. mutual fund assets, including more than $160 billion in ETF assets. Vanguard offers more than 170 index and actively managed funds to U.S. investors and more than 60 additional funds in non-U.S. markets. Vanguard provides investments to more than 8,500 defined contribution plans, including recordkeeping and investment services to 3.2 million participants in over 2,500 plans. Vanguard is also a major provider of investment, advisory, and recordkeeping services to defined benefit plans.

For more information, contact the Vanguard PR Hotline at 610-669-5002. Releases on individual industry reports are available upon request.

Resources:

How America Saves 2011 industry benchmark reports: www.vanguard.com/industrybenchmarks

How America Saves 2011: www.vanguard.com/howamericasaves

Plan sponsor benchmarking tool: www.vanguard.com/benchmarktool

All Vanguard asset figures are as of May 31, 2011, unless otherwise noted.

Investments are subject to risk. Investments in bond funds are subject to interest rate, credit, and inflation risk. Diversification does not ensure a profit or protect against a loss in a declining market.

Past performance is no guarantee of future returns and account balance results may have differed under other market conditions.

For more information about Vanguard funds, visit www.vanguard.com or call 877-662-7447 to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

Vanguard Marketing Corporation, Distributor.

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