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Data and Research March 5, 2025
Vanguard Sees All-Time High Deferral Rates, Plan Design Improvements in 2024
According to a preview of its ‘How America Saves’ report, Vanguard found that average account balances increased in 2024 and participants’ deferral rates are rising.
Reported by Remy Samuels
With more defined contribution retirement plans offering automatic features and increasing default deferral rates, Vanguard found that participant outcomes remained strong in 2024, according to a preview of its “How America Saves 2025” report.
Vanguard found that, driven primarily by positive market performance, account balance averages increased by 10% in 2024, and 45% of participants increased their deferral rate—either on their own or as part of an automatic annual increase—an all-time high since Vanguard started tracking this metric in 2019.
“Plan designs have never been stronger,” says Jeff Clark, head of defined contribution research at Vanguard. “What we’ve noticed is that over the last 20 years, the percentage of plans adopting automatic enrollment has increased every year, and last year was not an exception.”
As of year-end 2024, 61% of Vanguard plans that allowed employee-elective deferrals had adopted automatic enrollment. Larger plans—those with at least 1,000 participants—were more likely to implement automatic enrollment, with 78% using the design.
In addition, with automatic enrollment defaulted their employees into the plan at a rate of at least 4%, and Vanguard found that default rates have continued to increase every year.
Investing Trends
On the investment side, 67% of participants now have a professionally managed allocation, which Clark says is up from 45% in 2014. The majority of those invested in a professionally managed allocation are in target-date funds, with 60% of participants in pure TDFs and 7% using an in-plan managed account.
Clark says overall advice and managed account usage has been relatively flat compared with the previous year.
“But it’s also important to remember that each year, more plans are offering advice,” Clark says. “Sometimes it takes [time] to organically grow participants using advice, so that is a number that we do think will start to increase in the coming years, as there’s more stability and plans [have been] offering advice for a longer period of time.”
At the end of 2024, nearly 80% of participants had access to managed account advice services, according to Vanguard.
Vanguard also noted that participant trading, or exchange activity, was low last year, with only 5% of participants initiating an exchange in 2024, similar to 2023’s all-time low. Clark says overall participant trading has been decreasing over the last 20 years, much of it correlated with the increase of pure-TDF investing.
Alight Solutions similarly found in the fourth quarter of 2024 that retirement investors’ trading was light following a post-election bump. However, the late stock stumble, coupled with the Federal Reserve’s interest rate cut, fueled increased trading in December.
Hardship Withdrawals
The Vanguard report preview also revealed that hardship withdrawal activity increased in 2024, with 4.8% of participants initiating a hardship withdrawal, up from 3.6% in 2023.
Clark notes that one reason for the increase in hardship withdrawals could be because as more plans are offering auto-enrollment, it can disproportionately help lower-income workers save for retirement. These are also workers who tend to have liquidity restraints and may need to take a hardship withdrawal, Clark says.
He adds that the distribution process itself has been streamlined, and there has been increased financial stress on individuals over the last few years.
“Given higher interest rates, stubborn inflation [and] rising household debt, hardship withdrawals may serve as a bit of a safety net for some participants,” Clark says.
Clark says there the increase in hardship withdrawals was particularly notable in the second half of 2024, largely due to natural disaster declarations that enable participants to take out money to repair homes following natural disasters.
In terms of plan loans, 13% of participants had a loan outstanding at the end of 2024, in line with 2023 data.
“I think that this trend highlights the importance of just overall financial wellness and certainly the benefits of having an emergency savings fund that would help to cover some of these unplanned expenses,” Clark says.
The full “How America Saves” report will be released in June.
