Thirty-three percent of participants in defined contribution plans for which Vanguard is record keeper chose what it calls “professionally managed allocations” in 2011, up from 29% a year earlier and 9% in 2005.
Vanguard defines “professionally managed allocations” as target-date, target-risk or traditional balanced funds, or a managed account program, according to the report, “How America Saves,“ issued Tuesday.
“Some question the benefits of 401(k) plans because they transfer investment decision-making to generally inexperienced participants,” Jean Young, senior research analyst in Vanguard's Center for Retirement Research and principal author of the report, said in a news release. “Now, however, an increasing number of participants can leave the asset allocation, investment selection and ongoing management responsibilities of their account to the professionally managed allocation options available in their DC plans.”
Among other findings:
- Equities played a smaller role in DC plan allocations, accounting for an average 65% last year vs. 68% in 2010. The decline was due to “market fluctuations and participant trading activity,” the report said. The average equity allocation was as high as 73% in 2006 and 2007 and as low as 61% in 2008.
- A smaller percentage of participants made extreme asset allocations — either all equities or no equities — last year compared to recent years. In 2011, 18% invested in the extremes - 8% in no equities and 10% in all equities - compared to a combined 22% in 2010. The combined percentage of extremes has declined over the years, and the report said that DC plans' greater use of target-date funds and managed accounts has played a role in reducing the rate of extreme investments.
- The percentage of Vanguard clients offering target-date funds climbed to 82% last year, up from 79% in 2010 and from 28% in 2005, the year before the Pension Protection Act became law.
The Vanguard report was based on analysis of more than 2,000 qualified plans, most of which are 401(k) plans, for which Vanguard is the record keeper. The plans have more than 3 million participants.