Automatic Features Have Positive Impact

More participants, especially young, lower-income and minority workers, are likely to have healthier retirement savings thanks to automatic features in their retirement plans. Vanguard’s How America Saves 2014, which included data on 3.5 million participants, reports that automatic enrollment and automatic contribution rate increases continue to rise in popularity among sponsors and are improving participation and savings rates.

Automatic enrollment growth continues

More than one-third of the plans for which Vanguard provides recordkeeping had automatic enrollment by the end of 2013. Almost two-thirds of employees who participated in their 401(k) plan for the first time in 2013 were in automatic enrollment plans.

Although many auto-enrollment plans (69%) applied this feature only to new hires, now half of those plans also apply it to eligible employees who are not participating.

Most auto-enrollment plans also automatically increase participants’ contribution rates each year.

The participation rate for those who were automatically enrolled was 82%, versus 65% for those who enrolled voluntarily.

Target date funds remain primary default

Nearly all auto-enrollment plans offer a target date fund (TDF), other balanced fund or managed account as the default investment. Of those, 90% use a TDF.

At the end of 2013, 40% of participants invested only in an automatic investment option. Of this group, 31% invested in one TDF, 6% were in a balanced fund, and 3% were in a managed account.

About 55% of all participants invested in TDFs, and of those participants, nearly 56% had their entire account in a single TDF.

Participation stayed steady

In 2013, the average plan participation rate was 76%, which was largely unchanged from recent years.

The average deferral rate was 7.0%, which has changed little over the past five years.

Roth 401(k) feature usage grew

More than half of the plans had adopted a Roth 401(k) provision by the end of 2013.

In such plans, 13% of participants made Roth contributions. The usage rate has grown slowly but steadily over recent years.

Trading and loan activity was flat

Only 10% of participants traded in their accounts in 2013, which was virtually the same as the last few years.

Similarly, loan activity was unchanged in recent years. In 2013, 18% of participants had an outstanding loan, the average balance of which was $9,500.

Visit http://tinyurl.com/VanguardHowAmerSaves2014 for the full report.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; 877-306-5055; www.kmotion.com

© 2014 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.