News Column

Many Vanguard Small Business 401(k) Participants Have Plan Investments Professionally Managed

June 24, 2014

VALLEY FORGE, Pa.--(BUSINESS WIRE)-- View report at

More than three-quarters of small businesses employees who participate in their firm’s 401(k) plan have well-constructed, appropriately diversified investment portfolios, in many cases because their employer placed them in a professionally managed investment option, Vanguard researchers said today.

Vanguard Retirement Plan Access 2014, the small business version of Vanguard’s How America Saves 2014 report on retirement planning trends and behaviors within 401(k) and other defined contribution (DC) plans that Vanguard administers, showed that 76% of participants in small company plans held broadly diversified investments in 2013. More than half of those participants did so through a professionally managed investment option of a target-date fund, another type of balanced fund, or a model portfolio.

Many of those participants are in a professionally managed option because of action their employer took when it moved their plan to Vanguard Retirement Plan Access™ (VRPA), a service launched in 2011 to provide 401(k) and other plans to small businesses. During the switch to Vanguard, two-thirds of the plan sponsors chose to reenroll their participants’ assets into the plan’s qualified default investment alternative (QDIA). The QDIA consisted of a professionally managed balanced investment option, namely, a target-date fund (46% of participants held a single target-date fund), another type of balanced fund (4%), or a model portfolio (2%).

“Because these plan sponsors took such proactive steps, the portfolio construction of their participants tends to be strong,” said Jean Young, author of Vanguard Retirement Plan Access 2014 and a senior analyst in Vanguard’s Center for Retirement Research. “We’re seeing a rapidly growing number of participants in plans of other sizes also take advantage of professionally managed investment options, particularly target-date funds, but the prevalent usage of these options so quickly in small plans is especially encouraging.”

Vanguard Retirement Plan Access has grown rapidly since it launched and now has sufficient data to share through the report, which can be a useful tool for small business owners making decisions about offering quality workplace retirement plans and for retirement plan advisors working with business owners to design retirement plan features. “This report can be helpful to small business owners who already offer plans to determine how their plans compare with others, as well as to small employers considering whether to add a retirement plan to their benefit offerings,” said Jing Wang, head of VRPA. “In particular, the report shows how proper plan design can have a positive impact on participants’ retirement savings.”

Plan sponsors that moved their plans to, or started them at, VRPA also implemented many other important features that can help their participants save or invest wisely. For instance, 98% of those sponsors designate a qualified default investment alternative, 97% offer target-date funds, 73% offer a Roth feature that enables participants to contribute on an after-tax basis, and 99% offer catch-up contributions that enable participants age 50 and older to save an additional amount.

Fewer of these plans, however, automatically enroll participants or automatically increase their annual contributions. Only 19% of small plans had automatic enrollment, with 41% of those including an automatic annual contribution increase (compared to 34% and 69%, respectively, of larger plans).

Other key metrics used to assess retirement planning behaviors were on par with the broader Vanguard participant population tracked in How America Saves, including participation rates, participant contribution rates, Roth usage, and the percentage of participants contributing at the maximum statutory limit (both reports cite 2013 data). See the chart for comparisons.

  How America Saves   Vanguard Retirement
    2014   Plan Access 2014
Participants with professionally managed allocations 40% 52%
Participants using target-date funds (when offered) 61% 67%
Participants using single target-date fund 31% 46%
Participants using single risk-based balanced fund 6% 4%
Participants using managed account program or model portfolio 3% 2%
Participants with balanced investment strategies 66% 76%
Extreme participant asset allocations (100% fixed income or equity / 0% fixed income or equity) 14% 12%
Participation rate 76% 73%
Average participant deferral rate 7.0% 7.1%
Average total contribution rate (participant and employer) 10.2% 9.5%
Participants using catch-up contributions (when offered) 14% 17%
Participants using Roth (when offered) 13% 13%
Participants contributing at maximum statutory limit 12% 12%

Vanguard Retirement Plan Access 2014 is based on an analysis of the retirement saving and investing behavior of more than 60,000 participants in more than 1,400 small plans served through Vanguard Retirement Plan Access at the end of 2013.

Investments in Target Retirement 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 workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement 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. As of May 31, 2014, Vanguard managed more than $2.6 trillion in U.S. mutual fund assets. Vanguard offers more than 160 index and actively managed funds to U.S. investors and more than 100 additional funds in non-U.S. markets. Vanguard provides investments to more than 5,100 defined contribution plans, including full-service recordkeeping and investment services to 3.6 million participants. Those include more than 2,000 plans and over 95,000 participants served by Vanguard Retirement Plan Access for small businesses. Vanguard is also a major provider of investment and other services to defined benefit plans. For more information, please visit

For more information about Vanguard funds, visit, or call 800-662-7447, to obtain a 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.

All investing is subject to risks, including possible loss of principal. Diversification does not ensure a profit or protect against a loss.

Vanguard Marketing Corporation, Distributor.

© 2014 The Vanguard Group, Inc. All rights reserved.

For more information, contact Vanguard PR at 610-669-5002, or @Vanguard_PR.

Source: Vanguard

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