Record Number of Participants Raised Deferral Rate in 2023, Vanguard Reports

On the other side of the equation, plan loans were up 12% year-over-year, and hardship withdrawals increased modestly.


In 2023, a record-breaking 43% of participants raised their rate of salary deferral into retirement savings, marking the highest level observed by the Vanguard Group since tracking began, according to a preview released Monday of the recordkeeper and asset manager’s “How America Saves” report.

Last year, 15% of participants increased their payroll deferral percentage, while 28% experienced an automatic increase, accounting for the total of 43% boosting their deferral rates. Additionally, 8% of participants decreased their payroll deferral percentage.

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Automatic enrollment and automatic escalation were likely key drivers of the record deferral rates, according to the researchers. As of the end of 2023, 59% of Vanguard plans that allowed employee-elected deferrals had embraced an automatic enrollment approach. Among larger plans—those with at least 1,000 participants—77% implemented automatic enrollment.

Of plans employing automatic enrollment, 60% defaulted employees at a rate of at least 4%. Additionally, nearly 7 out of 10 plans automatically enrolled participants in an annual escalation feature, boosting their deferral percentage.

“Account balances are widely accessible on statements and websites and are often cited as participants’ primary tool for monitoring investment results,” the report stated. “As equity and bond markets increased in 2023, average participant account balances increased by 19% from year-end 2022.”

Borrowing, Too

On the other side of the ledger, retirement plan loan use increased by 12% compared with 2022, according to Vanguard. It remained below pre-pandemic levels and was about 10% lower than the loan initiation rate of six years ago.

Hardship withdrawals, in the meantime, increased to 3.6% of participants in 2023, up from 2.8% in 2022. Vanguard noted that the increase is somewhat expected due to the SECURE 2.0 Act of 2022 and trends in auto-enrollment.

“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 isn’t surprising,” Vanguard wrote in the report. “For a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that otherwise may not have been available without plan-implemented automatic solutions.”

Overall, balances trended up for savers in part due to savings, in part due to market increases. The average participant account balance reached $134,128 by the end of 2023, while the median balance was $35,286, reflecting a 29% increase since the end of 2022.

The proportion of participant assets invested in equities remained at 74% as of the end of 2023, consistent with the figures from 2022. In 2023, 79% of plan contribution dollars were allocated to equities, up from 77% in 2022.

“In conventional [defined contribution] plans, employees play a crucial role in funding, and their management of payroll deferral percentages significantly impacts retirement savings,” the report noted.

Professional Management Continues

Vanguard also noted that continued use of professionally managed allocations—such as single target-date, target-risk, traditional balanced funds or managed account advisory services—played a large role in participant investment allocations. At the close of 2023, 66% of Vanguard participants were invested in a PMA, in line with that of 2022.

The firm noted that 64% of all contributions were allocated to target-date funds, showing continued popularity in the relatively low-investment vehicles that adjust to a participant’s age and in which Vanguard is the leading provider, according to Simfund, which, like PLANADVISER, is owned by ISS STOXX.

Participant trading—exchange activity—reached an all-time low in 2023, with only 5% of participants (those not in a managed account program) initiating exchanges. Pure target-date investors, benefiting from age-appropriate equity allocations and continuous rebalancing, were four to five times less likely to trade compared with other investors.

The full report from Vanguard will be available in June. It will examine retirement plan data from nearly 5 million DC plan participants across Vanguard’s recordkeeping business. It highlights trends documented over the past 20 years and how those trends continued through 2023.

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