DC Plan Contribution Rate Increasers Still Outnumber Decreasers

September 2, 2009 (PLANSPONSOR.com) - A new report from the Vanguard Center for Retirement Research indicates that during the recent equity market decline, the proportion of defined contribution plan participants who decreased or stopped contributions rose; however, the percentage of participants who increased contributions still exceeded those decreasing or stopping.

In the analysis of more than one million participants in nearly 1,200 plans administered by Vanguard, the researchers noted that during the 2006 - 2008 period, an average of seven in10 participants made no changes to their elected contribution rates in a given year. These participants tend to be older, more tenured, and have higher DC account balances, the report said.

On average, the data showed, one in five participants increased their plan deferral rates each year during the 2006 - 2008 period. Those who increased their rates tend to be newly tenured participants with low account balances.

More than half of these participants increased their deferral rate by 1%. The researchers said this is likely because of the growing adoption of automatic annual increases among DC plans.

On average, 7% of participants decreased plan contribution rates each year during the 2006-2008 period - typically younger, newly tenured participants with higher account balances and high deferral rates (11% to 12%) who reduced their contribution rates by half, according to the report.

An average of 3% of participants stopped contributions each year during the three-year period. These tend to be younger and have low account balances.