Savings Account Allocations

Rising Number of 401(k) Retirement Plan Participants Opting for Diversified, Professionally Managed Allocations.

 on the Schuylkill River, SE Pa., NW of Philadelphia. There, during the American Revolution, the main camp of the Continental Army was established (Dec., 1777–June, 1778) under the command of Gen. George Washington.
, Pa. — One-third of all Vanguard 401(k) plan
participants invested their entire account balance in a professionally
asset allocation

 and investment option in 2011,
according to

1. As stated or indicated by; on the authority of:

2. In keeping with:

 Vanguard’s How America Saves 2012, an annual report on how U.S.
workers are saving and investing for retirement.

The report, widely used as a barometer of
retirement planning

 trends, noted that the increasing prominence of so-called professionally
managed allocations–in a single target-date or
balanced fund

 or through
a managed account advisory service–is one of the most important trends
in 401(k) and other defined contribution (DC) plans today. In 2011, 33%
of all Vanguard participants were invested a professionally managed
allocation program: 24% in a single target-date fund (

); 6% in a
single traditional balanced fund, and 3% in a managed account advisory
program. The total number is up from 9% at the end of 2005.

These options dramatically improve portfolio diversification for
many participants, helping to reduce the risks associated with either
having too much in equities (which could expose a participant to
considerable market volatility) or too little (reducing the long-term
return potential of a retirement portfolio). For instance, in 2011, a
total 18% of participants took an extreme position in equities, holding
either 100% in equities (10% of participants) or no equities (8%). In
contrast, a total of 34% of participants held extreme equity positions
in 2005.

“Some question the benefits of 401(k) plans because they
transfer investment decision-making to generally
1. Lack of experience.

2. Lack of the knowledge gained from experience.

 participants,” said Jean Young, chief author of How America Saves.
“Now, however, an increasing number of participants can leave the
asset allocation, investment selection and ongoing management
responsibilities of their account to the professionally managed
allocation options available in their DC plans.”

Fueling much of the growth of these programs is the soaring adoption
of TDFs. Eighty-two percent of plan sponsors offered target-date funds
in 2011, up from 28% in 2005. Forty-seven percent of all participants
use TDFs. While the growth of these funds is frequently attributed to
their designation as the investment default in automatic enrollment
plans, many participants are voluntarily choosing TDFs. In plans with
voluntary enrollment, 48% of participants are invested in TDFs.

Vanguard believes the surge of TDF usage will continue to influence
the adoption of professionally managed allocations. “Largely
because of the growing use of target-date options, we anticipate that
55% of all participants and 80% of new plan entrants will be entirely
invested in a professionally managed allocation by 2016,” Ms. Young

Here are other key trends in the report:

* Plan participation and auto features. The 2011 plan participation
rate was 76%, unchanged from 2010. Automatic plan enrollment continues
to rise. In 2011, 29% of Vanguard plans had adopted automatic
enrollment, up 2 percentage points from 2010. Employees in plans with an
automatic enrollment feature at the end of 2011 had an overall
participation rate of 80% compared with a participation rate of only 60%
for employees in voluntary enrollment plans. Seven in 10 automatic
enrollment plans have implemented automatic annual

increases, up from three in 10 in 2005. Automatic enrollment
particularly improves participation rates among traditional non-savers:
young, short-tenure and lower income workers.

* Plan savings. The average participant deferral rate rose to 7.1%
and the median (the median reflects the typical participant) was
unchanged at 6%. The aggregate average plan savings rate–including both
participant and employer contributions–was 10.4% in 2011.
Vanguard’s view is that investors should save 12% to 15% or more.
For participants with lower wages, Social Security is expected to
replace a higher percentage of income and so a lower retirement

 may be appropriate. For those earning higher wages, Social Security
replaces a lower percentage of income, and savings rates may need to be

* Plan account balances. The median account balances of continuous
participants–those with an account balance at both the end of 2010 and
2011–rose by 10%. Eight in 10 of these continuous participants saw
their balances rise because of conservative asset allocations (for
example, being invested exclusively or predominantly in fixed income
holdings) and ongoing contributions. In 2011, the median participant
account balance was $25,550 and the average was $78,296. “It’s
important to keep in mind that typical participants are in their mid-40s
and saving 10%, with about eight years of tenure with their current
employer, and 20 to 25 more years to grow their account,” said
Steve Utkus, head of Vanguard’s Center for Retirement Research and

 or co-au·thor  
A collaborating or joint author.

tr.v. co·au·thored, co·au·thor·ing, co·au·thors
To be a collaborating or joint author of:
 of the report. “Furthermore, their retirement plan assets
will likely be complemented by Social Security benefits and other
savings, including assets in other employer plans, a spouse’s plan,
or personal savings accounts.”

* Accessing plan assets. In 2011, 18% of participants had an
outstanding loan, unchanged from the year before. Only 4% of
participants took an in-service withdrawal; weak economic conditions
appeared to be affecting the withdrawal behavior of a very small group
of participants. In addition, participants separating from service
largely preserved their assets for retirement. During 2011, about 30% of
all participants could have taken their account as a distribution
because they had separated from service in the current year or prior
years. The majority of these participants (83%) continued to preserve
their plan assets for retirement by either remaining in their
employer’s plan or rolling over their savings to an IRA or a new
employer plan. They preserved 96% of the available assets.

* Low-cost fund options. With the
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies
1. To make intense or more intense:
 focus on plan fees,
plan sponsors are increasingly interested in offering a wider range of
low-cost index funds, including an “index core,” a
comprehensive set of low-cost index options that span the global capital
markets. In 2011, 44% of Vanguard plans offered a set of options
providing an index core. Because large plans have adopted this approach
more quickly, slightly more than half of all Vanguard participants were
offered an index core as part of their plan’s overall investment

How America Saves is based on an analysis of Vanguard’s
full-service recordkeeping plans. Along with looking at the overall
retirement saving and investing behavior of Vanguard’s more than 3
million participants, How America Saves this year includes supplemental
reports on participant patterns in the DC retirement plans of 12
specific industries.

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.

How America Saves 2012:

About Vanguard

Vanguard, headquartered in
Valley Forge, Pennsylvania

, is one of the
world’s largest investment management companies. Vanguard manages
approximately $1.8 trillion in U.S. mutual
fund assets

, including nearly
$200 billion in

See exchange-traded fund (ETF).
 assets. Vanguard offers more than 170 index and
actively managed funds to U.S. investors and more than 70 additional
funds in non-U.S. markets. Vanguard provides investments to more than
8,500 defined contribution plans, including recordkeeping and investment
services to more than 3.2 million participants in over 2,000 plans.
Vanguard is also a major provider of investment, advisory, and
recordkeeping services to defined benefit plans. For more information,
please visit

All Vanguard asset figures are as of May 30, 2012, unless otherwise

Mutual funds are subject to risks, including possible loss of
principal. Investments in bond funds are subject to interest rate,
credit, and inflation risk. Diversification does not ensure a profit or
protect against a loss in a declining market.

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

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