How America Saves 2021 - The Vanguard Group

How America Saves

2021

20 TH EDITION

In-depth research on the investing behavior of real retirement plan participants so you can explore what's possible.

June 2021

In-plan advice continues to play a critical role in aiding many retirement plan participants. It's such an effective way to achieve financial well-being because it focuses on both the economic aspects of retirement and the human side. Advice joins the ranks of automatic enrollment, target-date funds (TDFs), and other elements of smart plan design as key strategies plan sponsors can use to improve participant outcomes.

The growing use of these strategies is detailed in How America Saves 2021--an examination of retirement plan data from 4.7 million defined contribution (DC) plan participants across our recordkeeping business. Celebrating its 20th edition, How America Saves has become a trusted resource for plan sponsors and the financial services industry at large. This year's issue captures how plan participants and sponsors reacted to the COVID-19 pandemic. It shows many of the positive trends documented over the past 20 years in How America Saves--trends that fostered a beneficial long-term participant focus--continued throughout a volatile and uncertain 2020.

The growth of advice is particularly encouraging. During the past five years, the percentage of plans offering managed account advice has grown by 44%, and, in turn, the percentage of participants offered the service has grown by 34%. The reason: Plan sponsors see the value of advice in supporting participants in their full retirement journey. It's an approach that can provide the portfolio, financial, and emotional value necessary to support the complete scope of a participant's financial well-being.

Of course, it's impossible to achieve financial well-being without first turning employees not just into plan participants, but active participants who save enough to meet their retirement goals. Here, too, the data is encouraging.

Despite the pandemic, median account balances increased last year by 30%--a result of market dynamics and a steady rate of contributions. Participants did change (increase and decrease) their deferral amounts, although the trend remained largely positive. The proportion of participants in professionally managed allocations remained at 62%, and 76% of participants maintained a balanced strategy. And while 9 of 10 participants stayed the course and did not trade in 2020, participants were more active in trading because of the additional market volatility.

Such results are a testament to the power of thoughtful retirement plan design. It's also a preview of what can happen when plan design serves as the cornerstone of a broader financial well-being program. Our experience tells us that, as the retirement plan industry continues to evolve, plans will increasingly be designed to produce positive outcomes that are both financial and emotional. This is accomplished by giving participants access to personalized advice and guidance; reliable, high-quality investments; and a human-centered experience.

Data from How America Saves suggests we're moving in the right direction. We intend to keep that momentum going by focusing on an inclusive range of products, cutting-edge research, and advice provided through an intuitive wealth planning experience that supports the complete scope of financial well-being for participants. Concurrently, we'll continue building upon How America Saves with actionable wisdom, such as that in Insights to Action. Now in its second edition, it includes actions plan sponsors can take to optimize their plan design--our recommendations based on How America Saves data. It's all part of our ongoing efforts to provide plan sponsors and consultants with the tools they need to implement plan design that encourages financial well-being.

Sincerely,

John

John James Managing Director Institutional Investor Group

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Contents

Executive summary

3

DC retirement plans

7

Highlights at a glance

9

Market overview

12

Accumulating plan assets

15

Managing participant accounts

55

Accessing plan assets

98

Methodology

117

Acknowledgments

118

2

Executive

summary

Over the past decade, retirement plan sponsors have increasingly turned to plan design to influence employee retirement saving behavior. As a result, plan participation rates have increased, and automatic enrollment designs have become stronger. Participant portfolio construction also continues to improve with more age-appropriate asset mixes and less extreme equity allocations.

These trends continued largely unabated in 2020, when the COVID-19 pandemic sent shock waves through the global economy, increasing market volatility and causing unprecedented financial and nonfinancial uncertainty and concern. Fortunately, participants remained largely resilient. Not only did most resist dipping into their accounts, but participant saving rates remained stable. It's a testament to plan sponsors' growing use of automatic solutions, which leverage inertia for the benefit of the participant. Of course, the idea of investor inertia is not a new learning, but it has now been battle-tested in a very unusual environment. That's good news for plan sponsors, who are increasingly working to improve financial wellness on two fronts: Helping participants save for retirement and then spend in retirement.

Saving and investing attention is shifting to how best to provide participants with a holistic financial wellness platform, via advice, which also helps meet another challenge--offering guidance for the income needs of retirees who stay in their employers' plans. Meeting these needs, along with continually encouraging strong saving rates with appropriate investment diversification, are the primary drivers in creating successful retirement outcomes for employees.

Executive summary 3

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