Here’s How Americans’ Savings Behavior Changed During the 1st Quarter – National Association of Plan Advisors

As many workers face a variety of financial uncertainties, anupdate to Vanguards 2020 How America Saves study finds that their overall behavior in retirement plans has not wavered.

Both participation and deferral rates held steady during the first four months of 2020, and two-thirds of contributing participants saw their account balances rise, the firm notes in its update.

From January through April 2020, 7.2% of participants increased their payroll deferral percentage, while only 6.9% decreased their deferral rate. Vanguard notes that this data excludes participants who had their deferral percentage automatically increased through an autopilot design.

In addition, the research found that for the 12 months ended April 30, 2020, median account balances of continuous participantsthose with an account balance in both April 2019 and April 2020increased by 5%, while average total returns dropped 1.6%.

Because of ongoing contributions, account balances will appear to be less negatively impacted during falling markets, the report explains. This contribution effect may mask the psychological impact of falling stock prices on participants, it states. In addition, the report notes that, while equity markets decreased during the first four months of 2020, domestic bond markets were positive and helped offset negative equity returns for well-diversified participants.

The2020 edition of How America Saves was based on 2019 data from approximately 1,800 qualified plans and 5 million DC plan participants across the firms recordkeeping business. But considering the first quarter volatility, Vanguard has nowreleased thesupplemental update examining plan design and participant behavior during the first four months of 2020.

Stay the Course

The update notes that automatic plan features and professionally managed allocations helped nearly 95% of participants stay the course. Less than 2% of target-date investors traded during the recent market volatility, a rate five times lower than other Vanguard investors.

Participants portfolio allocations remained consistent throughout the market turmoil. Only 5.3% of DC participants traded between Jan. 2020 and April 2020. In addition, less than 1% of participants abandoned equities through a trade. Vanguard notes that this is partially attributed to participants increasing adoption of TDFs and other professionally managed solutions.

Loan issuances declined through April 2020, as did both hardship and nonhardship withdrawals, the report further observes. And while a small percentage of participants accessed their retirement savings through the CARES Actwhich eased retirement plan distribution and loan rules for those impacted by COVID-19most participants have not accessed their retirement plans.

Participants remained unflappable and focused throughout the recent market volatility, Martha King, managing director and head of Vanguard Institutional Investor Group, noted in a statement.

Underscoring the long-term importance of continued participation in 401(k) plans, the median account balance increased 71% among participants with a 401(k) account between April 2015 and April 2020.

Ongoing Trends

The firm notes that, while market and economic conditions look much different in 2020 than they did last year, the data reveals trends they expect will continue. For example, 50% of plans are now using automatic enrollment, more than triple the percentage in 2007.

The average total saving ratewhich combines employee and employer contribution ratesis 56% higher in plans with automatic enrollment compared with plans where enrollment is voluntary. And participant use of managed allocationsincluding TDF and managed account advisory servicesrose to 62% in 2019.

Other key findings from the 2020 edition of How America Saves include:

Read this article:

Here's How Americans' Savings Behavior Changed During the 1st Quarter - National Association of Plan Advisors