More Participants Choosing Professionally Managed Investments

June 26, 2012 ( - One-third of all 401(k) plan participants in plans recordkept by Vanguard invested their entire account balance in a professionally managed asset allocation and investment option in 2011.

By Rebecca Moore | June 26, 2012
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According to Vanguard’s How America Saves 2012 report, 24% of participants were in a single target-date fund (TDF); 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.  In addition, 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%), compared to 34% who did so in 2005.  

Fueling much of the growth of these programs is the soaring adoption of TDFs, Vanguard contends. 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 default investment 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,” said Jean Young, chief author of How America Saves.  

The annual Vanguard report found in 2011, the 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 deferral rate increases, up from three in 10 in 2005.