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Auto-Enrollment Lifts 401(k) Participation, Report Says

August 24, 2009
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In another sign that automatic enrollment boosts employee participation in 401(k) plans, Vanguard Group reports that plans offering the feature had an overall participation rate of 84 percent in 2008, compared with just 60 percent for plans without it, according to a report released Wednesday, August 19, by the mutual fund company.

The report, “How America Saves 2009,” which analyzed 2008 participant data in the 2,200 defined-contribution plans administered by Vanguard, also found that 20 percent of plans have adopted automatic enrollment, up from 5 percent in 2005.

The report also found “continuous” participants—those who had a balance at both the beginning and end of 2008—had a median decline of 14 percent in their 401(k) account balances, while pre-retirees (age 55 to 64) had a median decrease of 16 percent.

Thanks to a combination of ongoing contributions and conservative asset allocations, the report said, more than one-third of participants saw their balances rise or remain flat. About 20 percent of participants posted losses of 30 percent or more.

Vanguard 401(k) participants deferred an average 7 percent of their income into their 401(k) plans, down from 7.3 percent in 2007. The report cited the “fairly low” default deferral rate of 3 percent set by many automatic enrollment plan sponsors as the reason for the slight decrease.

At the end of 2008, 61 percent of 401(k) plan assets were invested in equities, down from 73 percent in 2007. The report estimates that declines in stock values accounted for eight percentage points of that decrease, while participants shifting assets to bonds accounted for four percentage points.


Filed by Jeff Nash of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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