Vanguard: Positive Signs for Retirement Accounts

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					Vanguard: Positive Signs for Retirement Accounts
Opportunities Remain to Help Workers Save More and Invest More Productively

July 23, 2010 10:17 AM Eastern Daylight Time  

VALLEY FORGE, Pa.--(EON: Enhanced Online News)--Many participants in 401(k) and other defined
contribution plans at Vanguard are well positioned for retirement security, according to How America Saves 2010,
a comprehensive annual analysis of defined contribution retirement plans and participant behavior released today by

The report—based on records for more than 3.2 million plan participants—found that many participants in 2009
experienced higher account balances, traded minimally in response to market volatility, increasingly diversified their
assets through automatic investment programs, and protected their retirement nest egg when they left their employer.
Only a very small group of participants appeared to be adversely affected by the tough economy, leading to a
modest decline in plan participation and savings rates and slight increases in loans and hardship withdrawals.

“Despite the financial maelstrom of the past few years, we’re seeing positive signs for many participants in employer-
sponsored retirement plans,” said Steve Utkus, head of Vanguard’s Center for Retirement Research and a co-author
of the report. “While there continue to be opportunities to improve saving rates and asset allocations, employees
covered by these plans are benefiting from improved plan design, such as automatic enrollment and automatic
deferral rate increases, as well as target-date funds.” 

Mr. Utkus also credits inertia for some of this behavior. “Inertia was once the foe of 401(k) plan participants,
holding them back from participating, putting away sufficient assets, and making optimal choices,” he said. “Now,
inertia may often be a friend of participants, as most continued to participate in their plan and contribute regularly,
while not trading excessively or altering their long-term allocations.” 

Most participants enjoyed higher account balances

At the end of 2009, the average account balance was $69,000, up 23% from year-end 2008. About two-thirds of
participants had account balances at the end of 2009 that were higher than they were in September 2007, just prior
to the stock market peak in October 2007. The median account balance rose by 10% for participants who had a
balance in September 2007 and at year-end 2009, reflecting the effects of improving asset values and ongoing
contributions. Over this 27-month period, only 6% saw declines of more than 30%.

“It’s important to put these account balances into perspective,” Mr. Utkus said. “The typical participant is a 45-
year-old male who is saving 9.4% and will likely work another 20 to 25 years. His corporate retirement plan assets
will be complemented by Social Security benefits and other savings, perhaps including a spouse’s retirement plan.
Even though there’s always room for improvement, many participants are on track to be in good shape for

More participants used professionally managed automatic investment programs

In 2009, 25% of all Vanguard participants were solely invested in a professionally managed automatic investment
option, such as a target-date fund, a balanced fund, or a managed account program—compared to just 7% only five
years ago. Sixteen percent of all participants were invested in a single target-date fund; another 6% held one
traditional balanced fund; and 3% utilized a managed account program.

That increase is important given the historically large proportion of participants who invest unwisely, at least from the
perspective of financial professionals. For instance, even in 2009, 11% of Vanguard participants invested all of their
plan assets in fixed-income options, while 14% put everything into stocks.

“Diversified, professionally managed automatic investment options help to eliminate portfolio construction errors and
can dramatically reshape retirement plan outcomes,” said Vanguard researcher and report lead author Jean Young.
“It is encouraging that 25% of our participants have turned to target-date funds and other diversified balanced
programs managed by investment professionals. The challenge is continuing to reach more participants who may
stand to benefit from these programs.” 

In particular, the adoption of target-date funds continues to grow. By year-end 2009, 75% of Vanguard plan
sponsors offered target-date funds and 42% of participants in those plans used the funds. As a result, one-third of all
Vanguard participants have part, or all, of their retirement plan account invested in a target-date fund. It’s important
to note that half of these participants voluntarily chose their target-date funds versus being defaulted into them by
their plan sponsor.

Participation and Savings Rates Dip Modestly

Key indicators of retirement savings trends are plan participation and contributions rates. In plans administered by
Vanguard, the 2009 plan participation rate was 75%, down 2 percentage points from 2008. Increases in plan
participation due to the growing use of automatic enrollment were offset by the number of participants who chose to
stop participating, likely due to difficult economic conditions. Yet there was a marked increase in participation rates
among lower-income and younger employees, a likely result of automatic enrollment.

The average employee deferral rate in 2009 was 6.8%, declining slightly from their peak in 2007 of 7.3%. Vanguard
estimates that about half of the decline in contribution rates may be due to the economic environment and the other
half results from increased adoption of automatic enrollment. Three-quarters of automatic enrollment plans set their
default deferral rate at a low 3% or less, reducing the overall contribution rate.

Importantly, once employer contributions are added in, the average contribution rate in 2009 jumped to 9.4%. The
result is that many participants are in better shape for retirement than has widely been assumed. “When you factor in
Social Security and the fact that more participants are using a balanced investment strategy, many of them are on
track to replace 75% of their income at retirement. While many participants do have decent savings rates, we would
encourage all participants to strive for a total savings rate, including any employer contributions, in at least the 12%
to 15% range,” Ms. Young said.

Some participants will be aided by automatic annual deferral rate increases; three-quarters of automatic enrollment
plans had implemented such increases by the end of 2009, up from about one-third in 2005.

How America Saves 2010 is based on Vanguard’s 2009 recordkeeping data for more than 3.2 million participants
in 2,200 qualified defined contribution plans. For trends in trading activity, see page 60; for loans and withdrawals,
see pages 66-71; and for distributions, see page 71.

Investments in target date funds are subject to the risks of their underlying funds. The year in the fund name refers to
the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund
will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date.
An investment in the target date fund is not guaranteed at any time, including on or after the target date.


About Vanguard

Vanguard, headquartered in Valley Forge, Pennsylvania, is one of the world’s largest investment management
companies. Vanguard manages nearly $1.4 trillion in U.S. mutual fund assets. Vanguard offers more than 160 index
and actively managed funds to U.S. investors and more than 50 additional funds in non-U.S. markets. Providing
recordkeeping and investment services to more than 3 million participants and 1,700 plan sponsors in over 2,200
defined contribution plans, Vanguard is also a major provider of investment, advisory, and recordkeeping services to
defined benefit plans.

All asset figures are as of June 30, 2010, unless otherwise noted.
For more information, visit, or call 800-662-7447 to obtain a fund prospectus. Investment
objectives, risks, charges, expenses, and other important information about a fund are contained in the
prospectus; read and consider it carefully before investing.

Investments are subject to risk. Diversification does not ensure a profit or protect against a loss in a
declining market.

Past performance is no guarantee of future returns and account balance results may have differed under other market

Vanguard Marketing Corporation, Distributor.

Linda Wolohan, 610-503-2947
John Woerth, 610-669-6224
Rebecca Katz, 610-503-2273
Amy Chain, 610-669-2149
Joshua Grandy, 610-503-7356
Vanguard PR Hotline, 610-669-5002

Visit Vanguard’s pressroom at


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