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Vanguard sees 75% of DC participants in professionally managed options by 2021

Vanguard Group predicts that by 2021 three-quarters of participants in its record-keeping plans will be solely invested in professionally managed options — target-date funds, managed accounts or balanced funds.

The primary driver of this trend is target-date funds, said an annual report, “How America Saves 2017,” issued Tuesday. By year-end 2016, Vanguard said 46% of participants invested in a single target-date fund, 3% had a balanced fund and 4% invested solely in a managed account. Only 17% of participants were invested solely in one of these options in 2007.

“These diversified, professionally managed investment portfolios dramatically improve portfolio diversification compared with participants making choices on their own,” said the report, which analyzed data from more than 4.6 million participants in more than 8,500 plans for which Vanguard is the record keeper.

Vanguard's prediction for 2021 was illustrated by what the company said was the overall growth in target-date fund use and the rise of target-date funds as a qualified default investment alternative. Also, the report noted that 85% of new participants — those entering a DC plan for the first time last year — were solely invested in one of the professionally managed investment options.

Target-date funds are nearly ubiquitous in Vanguard-administered plans. Ninety percent of sponsors offer them, and 97% of participants are in plans that offer target-date funds.

During the last 10 years, the Vanguard report noted that participants reduced their “concentrated” holdings of company stock — defined as 20% or more of a participant's account. Among plans that offered company stock, 24% of participants had concentrated company stock investments last year vs. 32% in 2007. Nine percent of Vanguard clients offered company stock last year vs. 11% in 2007.