How America Saves: Plan Design Has Big Impact

The power of plan design to help Vanguard Retirement Plan Access™ (VRPA) participants save for retirement is evident in How America Saves 2019: Small business edition. Find out more by reading the report.

Small businesses account for 99.7% of all employer firms according to the Small Business Administration (SBA). So how are VRPA clients helping their employees prepare for retirement? Consistent over two years, 77% of VRPA plans provided either an employer match or nonelective contribution, or both. Nearly all VRPA plans have designated a default fund, and 96% had selected a target-date fund option as the default option in 2018.

Change in participation rates

Retirement plans administered by VRPA are divided into two populations: start-up plans, which began within the last three years, and established plans, which began more than three years ago. Altogether, the average VRPA plan has 42 participants and $2.3 million in plan assets.

Since VRPA's 2011 inception, each plan has gone through plan design or review, which speaks to the consistency in annual data. Research shows that plan sponsors and advisors can better prepare employees' retirement readiness through strong plan design. As of 2018, the participant-weighted participation rate—a measure that considers all employees in VRPA plans as if they were in a single plan—was 60%.

Younger and low-income employee trends

Plan participation within small- and mid-sized companies improved with age and job tenure. Only 35% of employees younger than 25 made deferrals to their employer's plan in 2018.

Tenure also has a significant influence on plan participation. In 2018, 44% of employees with less than two years on the job participated in their employer's plan. Employees with tenure of ten years or more had a participation rate of 80%.

Other highlights

• Among all VRPA plans, 97% of designated QDIAs were target-date funds.
• VRPA participants saved 7.1% of their income on average.
• 6 in 10 eligible employees are enrolled in their employer's voluntary savings program across the VRPA universe of participants.
• VRPA serves 11,300 plan sponsors with 480,000 participants.

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All investments are subject to risk, including the possible loss of the money you invest.

Investments in target-date 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 target-date funds is not guaranteed at any time, including on or after the target date.

Reduce Costs, Risks Associated with Former Employees’ Accounts

You can reduce the time and costs associated with maintaining the accounts of former employees by either rolling over small balances into IRAs or making cash payouts. Contact your Client Service Team to review your plan provisions and options, including ways to

• cut plan expenses
• limit administrative tasks
• avoid unnecessary tracking of former employees
• help manage fiduciary risk

Your Required Minimum Distribution (RMD) Package is Coming Soon

To help you meet your compliance responsibility for ensuring that affected participants and beneficiaries take their required minimum distributions (RMDs)—which generally must be distributed by December 31 of each year—we’ll post your 2019 RMD package to your plan website in October and send a reminder when it's available. In the meantime, refer to this overview for actions we recommend you start taking now.  

Increasing Plan Participation Matters

You should care how much your employees are saving for retirement. Find out why in this first in a series of articles designed to explain the benefits of increasing retirement plan participation.

• Streamlined compliance testing. Some plans must go through complex, annual compliance testing to ensure that highly compensated employees (HCEs) are not disproportionately benefiting relative to rank-and-file employees. Failing these tests can lead to added headaches and expenses: the employer may have to refund deferrals to HCEs or make contributions to non-HCEs in order to pass the test. The good news is that you can potentially avoid compliance testing failures through increased participation and contributions from non-HCEs.

• Enhanced productivity. Actuaries estimate financial stress costs 15% to 20% of the total compensation paid to your employees.* Focusing on financial wellness can help reduce financial stress among your staff, creating more job satisfaction, and driving better business performance.

Look for future articles in this series highlighting strategies you can use to encourage plan participation.

*“Measuring the ROI of Financial Wellness,” American Society of Pension Professionals & Actuaries, September 2018.

Vanguard Receives First Exemplary Stewardship Award from Morningstar

Vanguard CEO Tim Buckley accepted the 2019 U.S. Morningstar Award for Investing Excellence for Exemplary Stewardship at the Morningstar Investment Conference—one of the three top honors presented by the firm. Vanguard is the inaugural recipient of the award, which recognizes the asset manager that has shown an unwavering focus on serving the best interests of investors.

"We are pleased to receive this honor from a firm we respect and admire, and one who is like-minded in the service to investors," said Mr. Buckley. "The award is a testament to Jack Bogle's vision: Creating a company owned by its clients¹ and operated solely in their interests. This same spirit of insurgency and client focus that inspired the formation of Vanguard four decades ago will continue to guide our work today and in the future."

Vanguard has sought to serve investor interests by espousing long-term, balanced, low-cost investing; offering sound and sensible investments; serving as a voice for investors in Washington and in corporate boardrooms; and providing thoughtful research and perspective. Since its founding on May 1, 1975, the firm has emerged as a leading global asset manager with more than $5.4 trillion in assets.

Vanguard has continuously embodied its mission of taking a stand for all investors, treating them fairly, and giving them the best chance for investment success. The firm recently won praise for lowering the cost of investing by expanding its commission-free² ETF platform, while eliminating risky inverse and leveraged products that it deemed "incompatible with long-term investing" and out of concern for the potential misuse by the average investor. Vanguard has also expressed strong support for an SEC proposal to help investors make more informed investment decisions through more clear and succinct fund disclosures. Most recently, the company advocated for greater boardroom diversity and other governance "best practices."

In addition to these recent examples, Vanguard has a long history of client centricity. Vanguard has closed top-performing funds and turned away "hot money." The firm frequently cautions consumers about the risks of investing and warns them about questionable investments and industry practices. Vanguard is also a vocal proponent of investor education and supportive of several investor literacy efforts.

Exemplary Stewardship award methodology

Morningstar conducts in-depth qualitative analyses in order to select nominees and, subsequently, vote to determine the award winner. To qualify for the award, the firm must have received a Parent pillar rating of "positive." The Parent pillar rating measures the quality of a firm's care of investors' capital. The firms must demonstrate an investor-focused corporate culture and an alignment of interests between investors and the people who control the destiny of the investment strategies.

Asset figures as of March 31, 2019 unless otherwise noted.

¹ Vanguard is client-owned. As a client owner, you own the funds that own Vanguard.
² Commission-free trading of Vanguard ETFs® applies to trades placed both online and by phone. Commission-free trading of non-Vanguard ETFs excludes leveraged and inverse ETFs and applies only to trades placed online; most clients will pay a commission to buy or sell non-Vanguard ETFs by phone. Commission-free trading of non-Vanguard ETFs also excludes 401(k) participants using the Self-Directed Brokerage Option; see your plan's current commission schedule. Vanguard Brokerage reserves the right to change the non-Vanguard ETFs included in these offers at any time. All ETFs are subject to management fees and expenses; refer to each ETF's prospectus for more information. Account service fees may also apply. All ETF sales are subject to a securities transaction fee. See the Vanguard Brokerage Services® commission and fee schedules for full details.

Notes:

• For more information about Vanguard funds or Vanguard ETFs, visit vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
• Vanguard ETF Shares are not redeemable with the issuing fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
• All investing is subject to risk, including the possible loss of the money you invest.
• Vanguard Marketing Corporation, Distributor of the Vanguard Funds.
• Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar's Manager Research Group's current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst Ratings are not guarantees nor should they be viewed as an assessment of a fund's or a fund's or separately managed account's underlying securities’ creditworthiness. This press release is for informational purposes only; references to securities or a separately managed account investment strategy in this press release should not be considered an offer or solicitation by Morningstar to buy or sell those funds.