Record Number of 401(k) Participants Increased Deferral Rate
According to Vanguard’s How America Saves 2025, 45% of plan participants increased their deferral rate—either voluntarily or through an automatic annual increase. This marks the highest percentage ever recorded in the history of How America Saves.
In 2024, 16% of participants raised their payroll deferral percentage, while 8% reduced it. Additionally, 29% experienced an increase due to automatic annual escalation.
As equity markets grew in 2024, the average participant account balance rose by 10% from year-end 2023, reaching a record high. By the end of 2024, the average account balance stood at $148,153, while the median balance increased by 8% to $38,176.
“The Vanguard study points to the impact of automatic enrollment,” said Patty Hutchinson, director of retirement plan services for Savant Wealth Management. It’s important for plan sponsors to understand how the design of the plan can influence participants’ savings. In addition to automatic enrollment, other plan features for plan sponsors to consider include:
Default Contribution Rates: Should be set so that participants save at a meaningful level. If the rate is too low, it may result in insufficient savings for the future, while a rate that is too high could discourage participation altogether.
Auto Escalation Feature: Increases employee contributions over time, helping to improve long-term savings. This approach helps employees keep up with inflation and stay on track with their retirement goals.
Employer Match Structure: Incentivizes participants to contribute more to receive the full matching funds. The design of the match, whether dollar-for-dollar up to a percentage or tiered matching, plays a key role in shaping savings behaviors.
Vesting Schedule: Helps improve employee retention and long-term savings commitment. Immediate vesting can encourage participation but may weaken retention because employees can access contributions right away. In contrast, longer vesting schedules motivate employees to stay with the company to retain employer contributions.
Investment Options and Defaults: Aids to promote smart investing by offering a well-structured investment lineup, featuring diversified options like target-date funds.
Loan and Withdrawal Provisions: Helps provide easy access to funds in times of need, but if not properly managed, they can reduce long-term savings. While restrictive policies can help preserve retirement assets, it’s important to strike a balance to help meet individuals’ financial needs.
Roth vs. Pre-tax Options: Offering traditional pre-tax and Roth post-tax options allows participants to optimize tax efficiency based on their financial situation.
Financial Wellness and Education: Assists in promoting better saving habits by providing retirement savings and financial planning educational tools, such as calculators and professional guidance.
“Helping plan sponsors understand how to build a retirement plan that works for their business and employees is paramount,” said Hutchinson.
Additional Observations
The Vanguard study highlights the powerful influence of plan design on participant savings behaviors, with automatic enrollment and other features playing key roles in impacting retirement outcomes. By considering factors such as default contribution rates, auto escalation, employer match structures, and financial wellness education, plan sponsors can craft a plan designed to help employees attain financial security in retirement.
Understanding the impact of these design elements is crucial for fostering long-term savings habits and creating a plan that works for the business and its employees. With the right tools and guidance, we believe participants are more likely to stay on track with their retirement goals.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices or categories. Please also note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your accounts; and, (3) a description of each comparative benchmark/index is available upon request
Patricia L. Hutchinson
Director of Retirement Plan Services
MBA