Participation Rates in 401(k) Plans Reach All-Time High

After adoption of automatic enrollment increased consistently over 15 years, plan participation reached a record high in 2022.

Automatic enrollment and automatic annual increases have driven participation rates in 401(k) plans recordkept by the Vanguard Group to an all-time high, according to the firm’s annual “How America Saves” report.

Since the passage of the Pension Protection Act in 2006, adoption of automatic enrollment has more than tripled, according to the Valley Forge, Pennsylvania-based asset manager. The study indicated that at year-end 2022, nearly 58% of plans and 76% of plans with at least 1,000 participants have adopted the design. Accordingly, last year saw record plan participation of 83%.

The news from Vanguard comes as the SECURE 2.0 Act of 2022’s first provision, Section 101, requires auto-enrollment and auto-escalation for new plans. 

“To date, many of our plan sponsors and consultants have taken tangible steps to improve plan design with features such as automatic enrollment and automatic escalation,” John James, managing director of the institutional investor group at Vanguard, said in a statement. “Many are starting to make their plan a destination by introducing financial wellness features to their benefits packages.”

Vanguard also found that participants kept saving in 2022 despite market volatility. The average deferral rate was 7.4%, a record high, and nearly 98% of plan sponsors also offered some type of employer contribution, helping the total average contribution rate reach 11.3%.

Meanwhile, participant trading in retirement plans was muted in 2022. Only 6% of defined contribution plan participants traded within their accounts. On a net basis, there was a shift of 1% of assets to fixed income during the year, with most traders making small changes to their portfolios.

Participant trading has declined significantly over the last 15 years, and Vanguard’s report attributed the decline to the increased adoption of target-date funds and retirement savers valuing buy-and-hold strategies.

“Building on the proven benefits of smart plan design, employers are increasingly exploring more comprehensive efforts to help their employees reach their long-term financial goals,” James said in a statement. “In addition to advice, forward-thinking plan sponsors are offering financial wellness tools such as student debt paydown and supplemental savings accounts like HSAs.”

Vanguard data included in “How America Saves 2023” report was drawn from several sources, including the firm’s defined contribution clients and recordkeeping clients.