DC participation, savings rates keep ticking up amid uncertainty — Vanguard

Rocky markets and uncertain economic times have not kept employees from participating in their employers' defined contribution retirement plans, according to Vanguard's 2022 How America Saves report released Tuesday.

In 2021, 81% of employees eligible to participate in their employers' retirement savings plans did so, unchanged from 2020 and up from 78% in 2019. The plan participation rate has been rising steadily since 2016, when 71% of employees participated in their employers' plans, according to the report.

Given the market and economic uncertainty of 2021, many industry observers may have expected a pause or even a reversal in the progress DC plans have made in participation rates but "that was not the case," said David Stinnett, principal and head of strategic retirement consulting at Vanguard, during a virtual press conference.

Mr. Stinnett attributed the uptick to auto enrollment, saying "strong modern plan design" is "hugely important in driving retirement outcomes."

Mr. Stinnett pointed to the fact that plans with automatic enrollment had significantly higher participation rates than those that did not. Plans with auto enrollment had a participation rate of 93%, while those that did not had a participation rate of 66%.

Deferral rates also held steady, according to the report. In 2021, the median deferral rate was 6.1%, unchanged from 2020 and up slightly from 6% in 2019.

Notably, 42% of participants increased their contributions in 2021 with only 7% decreasing and 2% stopping. Most, 49%, left their contribution rates unchanged.

Default deferral rates also crept up. In 2021, 58% of plans chose a default of 4% or higher, compared with 2012 when only 32% did. More than 1 in 4 plans, 27%, chose default rates of 6% or more.

"Early adopters of auto enrollment had defaulted participants typically at around 3%, which in retrospect was probably too low of an initial starting point to start saving in a retirement plan," Mr. Stinnett said.

For all the improvements, Mr. Stinnett lamented the fact that savings rates still fall short of where they should be. In 2021, the median aggregate participant and employer contribution rate was 10.4%, which Mr. Stinnett said "may be insufficient for optimal retirement readiness."

"That's good and that's been increasing, but we very much want to make sure that it gets to that 12% to 15% range," he said.

The Vanguard report is based on 1,700 qualified plans, 1,400 clients and nearly 5 million participant accounts for which Vanguard directly provides record-keeping services.