Professionally Managed Portfolios to Continue Rising

Vanguard expects that the use of professionally managed portfolios, which are currently employed by more than half of its participants today, will reach 75% by 2021. Further, the skyrocketing use of automatic features in the past 10 years has meaningfully benefited participation rates, savings rates and balanced asset allocation strategies, according to Vanguard’s report “How America Saves 2017.” Ninety-seven percent of participants in its plans received a company match in 2016, Vanguard found.

“DC [defined contribution] plans have evolved to become a pillar of retirement savings for millions of Americans, and plan sponsors have responded by building plans that encourage employees to participate, save more and invest appropriately,” says Martha King, managing director of Vanguard’s Institutional Investor Group.

Nearly half of Vanguard’s plans automatically enroll their workers—a 300% increase in the past 10 years. Plans that automatically enroll participants report a 90% participation rate. Among plans that automatically enroll and leave that decision up to the participant, 79% of workers participate in their 401(k) plan, a 16% increase from 2007.

In addition, Vanguard plans that automatically enroll participants at a 4% or higher deferral rate have doubled to 48%, and plans that have an automatic deferral rate of 6% or higher have tripled to 20%. Ninety-seven percent of plans that automatically enroll participants use a target-date fund (TDF) as the qualified default investment alternative (QDIA).

Moreover, the percentage of Vanguard participants invested exclusively in equities dropped from 17% in 2007 to 6% in 2016. Less than 10% of participants made a change to their portfolio last year.

The full, 110-page “How America Saves 2017” can be downloaded here.