In another sign that automatic enrollment boosts employee participation in 401(k) plans, Vanguard Group reports that plans offering the feature had an overall participation rate of 84% in 2008, compared with just 60% for plans without it, according to a report released today by the mutual fund company.
The report “How America Saves 2009,” which analyzed 2008 participant data in the 2,200 defined contribution plans administered by Vanguard, also found that 20% of plans have adopted automatic enrollment, up from 5% in 2005.
The report also found “continuous” participants — those who had a balance at both the beginning and end of 2008 — had a median decline of 14% in their 401(k) account balances, while preretirees (aged 55 to 64) had a median decrease of 16%. Thanks to a combination of ongoing contributions and conservative asset allocations, the report said, more than one-third of participants saw their balances rise or remain flat. About 20% of participants posted losses of 30% or more.
Vanguard 401(k) participants deferred an average 7% of their income into their 401(k) plans, down from 7.3% in 2007. The report cited the “fairly low” default deferral rate of 3% set by many automatic enrollment plan sponsors as the reason for the slight decrease.
At the end of 2008, 61% of 401(k) plan assets were invested in equities, down from 73% in 2007. The report estimates that declines in stock values accounted for eight percentage points of that decrease, while participants shifting assets to bonds accounted for four percentage points.