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401(k) Plan Participants Remained Resilient Through 2022: Vanguard

Industry Trends and Research

While average account balances decreased by 20% in 2022, participant behavior in retirement plans mostly remained positive, as most continued to maintain a long-term view on their retirement savings goals.  

Why? Continued adoption of automatic enrollment over the last two decades and the use of professionally managed allocations are two big reasons, according to a preview of Vanguard’s annual How America Saves report, which exams data from nearly 5 million defined contribution (DC) plan participants across the firm’s recordkeeping business.

“Participant outcomes remained strong as plan sponsors continued to implement automatic solutions and leverage human inertia to influence decision-making, even in the face of the challenging economic environment of 2022,” writes Jeffrey Clark, Senior Research Analyst at Vanguard.

In fact, nearly 4 in 10 participants increased their deferral rate—either on their own or as part of an automatic annual increase—in line with previous years. What’s more, the proportion of participants in professionally managed allocations increased to 66%, while 79% of participants maintained a balanced strategy, up slightly from 78% in 2021. And against a challenging market environment with increased volatility, only 6% of non-advised participants traded, the lowest point in 20 years. 

Plan Design

Diving deeper into the data reveals that, as of year-end 2022, 58% of Vanguard plans permitting employee-elective deferrals had adopted an automatic enrollment design, up from 56% in 2021. Not surprisingly, larger plans were more likely to implement automatic enrollment, with 76% of plans with at least 1,000 participants using the feature.

Plan designs also continued to improve. Here, Vanguard found that nearly 6 in 10 plans (59%) with an automatic enrollment design defaulted their employees into the plan at a rate of 4% or higher—a trend that has continued to increase every year. And nearly 7 in 10 plans automatically enrolled employees into an annual escalation feature that increased their deferral percentage.


As to the changes in participant deferral rates, 15% increased their payroll deferral percentage over the course of 2022, while 9% decreased their deferral rate. An additional 24% of participants had their deferral percentage increased from an annual automatic increase. These behaviors, Clark notes, are very much in line with previous years.

Meanwhile, 77% of plan contributions were invested in equities during 2022, in line with total 2021 contributions, while 6 of every 10 dollars contributed throughout the year were invested in target-date funds (TDFs).

Professionally Managed Allocations

Inherent in the improvements in participant investment allocations is the rising prominence of professionally managed allocations, including in a single target-date, target-risk or traditional balanced fund, or in a managed account advisory service, Vanguard’s preview further suggests.

As of year-end 2022, 66% of Vanguard participants were invested in a professionally managed allocation, up 2 percentage points from year-end 2021. 

“This rising use of professionally managed allocations is also contributing to a reduction in portfolio construction errors,” Clark observes, adding that the fraction of participants holding broadly diversified portfolios has risen steadily over the past decade and stood at 79% at the end of 2022.

The use of professionally managed allocations apparently has also helped keep participant trading to a minimum. When participants using the managed account program are excluded, only 6% of participants initiated an exchange in 2022, compared with 8% during 2021. “Given the uncertainty in the economy, it is remarkable that 94% of participants did not make an exchange throughout the entire year,” Clark emphasizes.

Additionally, participants who are pure TDF investors benefit not only from continuous rebalancing during volatile markets but are also far less likely to trade when compared with all other investors. Through 2022, only 2% of all pure TDF investors made an exchange, a rate five times lower than all other investors, Vanguard’s data shows.  

Tapping Plan Assets

Overall, plan loans and in-service withdrawal activity increased modestly in 2022, compared with 2021. Here, Vanguard found that loan use increased by 9% compared with 2021, although it remains below pre-pandemic levels and is about 25% below the loan initiation rate of five years ago. 

And while non-hardship withdrawals were similar to 2021, hardship withdrawals increased moderately, perhaps signaling that some households were facing financial stress. Throughout 2022, 2.8% of participants initiated a hardship withdrawal, up from 2.1% in 2021.

That said, given that it’s now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement—especially lower-income workers—a modest increase is not surprising, Clark observes.

And it is important to note that more than 97% of participants did not take a hardship withdrawal during the year, underscoring that participants generally are resilient and have maintained a long-term approach to retirement savings, even amid a difficult economic climate.

The 22nd edition of Vanguard’s annual analysis of retirement saving behavior will be available in June.