firms 2017 Industry benchmark data supplement to How America Saves
Introduction To help defined contribution (DC) plan sponsors understand how their industry s plans compare with -recordkept, we are pleased to offer this industry benchmark report. It is based on 2016 recordkeeping data and compiled from our comprehensive data systems systems that are the backbone of the research and analysis that have made a valued resource within the retirement plan industry. We believe this information can help you make more effective plan decisions and will serve as a valuable reference tool as you continue to develop your retirement programs. The report s data is for legal services firms with -recordkept qualified. These are firms listed under North American Industry Classification System (NAICS) code 5411. This classification includes law offices, notary offices, title abstract and settlement offices, and other legal services. Throughout this document, we divide the data for legal services firms into two groups based on the number of in the plans. This breakout should make the data more relevant for plan sponsors. Data is labeled as <250 for plans with fewer than 250 and 250+ for plans with 250 or more. Contents Benchmark population... Figure 1 Accumulating plan assets Participation rates...figure 2 Deferral rates...figure 3 Aggregate participant and employer contribution rates... Figure 4 Automatic enrollment design...figure 5 Catch-up contributions... Figure 6 Roth contributions...figure 7 After-tax contributions...figure 8 Account balances...figure 9 Managing participant accounts Asset and contribution allocations...figure 10 Number of investment options offered...figure 11 Number of investment options used...figure 12 Types of investment options offered and used... Figure 13 Participants with professionally managed allocations...figure 14 Participants with professionally managed allocations, new plan entrants during the year...figure 15 Plan use of target-date funds...figure 16 Participant use of target-date funds...figure 17 Distribution of equity exposure...figure 18 Advice offered...figure 19 Accessing plan assets Participant loans... Figure 20 Participant in-service withdrawals...figure 21
Figure 1. The benchmark population includes all in full-service qualified DC plans sponsored by law offices, notary offices, title abstract and settlement offices, and other legal services. Most figures in this booklet compare data for this population with that of all qualified. Figures 2, 3, and 4 are estimated for 2016 1. Accumulating plan assets Figure 2. The participation rate is the broadest metric for gauging 401(k) performance. Plan-weighted participation is calculated by taking the average of participation rates among all plans. Participantweighted participation considers all employees in all plans as if they were in a single plan. Figure 1. Benchmark population, 2016 defined contribution plans <250 250+ Number of plans 137 54 1.9 thousand Number of 13,322 49,124 4.4 million Average number of 97 910 2,250 Median number of 85 577 397 Amount of plan assets $4 billion $10 billion $420 billion Average plan assets $28 million $183 million $216 million Median plan assets $20 million $106 million $41 million Source:, 2017. Figure 2. Participation rates, 2016 estimated defined contribution plans 9 76% 73% 82% 79% 81% 79% <250 250+ Plan-weighted Participant-weighted Source:, 2017. 1 Please see Methodology section on page 13. firms > 1
Figure 3. The level of participant deferrals is a critical determinant of whether a plan will generate an adequate level of savings. Deferral rates exclude eligible employees not contributing to their plan. The median rate means half of were saving above this rate and half were saving below it. Figure 4. Taking into account both employee and employer contributions, the average total participant contribution rate in 2016 was 10.9% and the median was 10.. estimates that a typical participant should target a total contribution rate of 9% to 12% to 15% or more, including both employee and employer contributions. For with lower wages, Social Security is expected to replace a higher percentage of income, and so a lower retirement savings rate may be appropriate. For higher-wage, Social Security replaces a lower percentage of income, and savings rates may need to be higher. In fact, higher-wage may not be able to achieve sufficient savings rates within the plan because of statutory contribution limits. Figure 5. Automatic enrollment or autopilot plan designs reframe the savings decision. Instead of making a positive election to join the plan, employees are automatically enrolled and must take action to opt out. Automatic enrollment or autopilot designs are an important plan design feature that can increase plan participation and plan deferral rates. With an autopilot design, individuals are automatically enrolled into the plan, their deferral rates are automatically increased each year, and their contributions are automatically invested in a qualified default investment alternative (QDIA). Figure 3. Deferral rates, 2016 estimated Figure 4. Aggregate participant and employer contribution rates, 2016 estimated defined contribution plans <250 250+ Deferral rates Average 7.4% 7.1% 6.2% Median 6.8 6.8 5.0 defined contribution plans permitting employee-elective deferrals 15% 12.2% 11. 12.4% 11.3% 10.9% 10. Distribution of rates 0.1% 3.9% 26% 26% 36% 4. 6. 18 18 23 6.1% 9.9% 37 39 23 10. 14.9% 12 11 13 15.+ 7 6 5 Source:, 2017. <250 250+ Average Median Source:, 2017. 2 > firms
Figure 6. Nearly all plans offer catch-up contributions. Figure 6. Catch-up contributions, 2016 Figure 7. The Roth feature is offered by 65% of plans. Figure 8. After-tax employee-elective deferrals are available to in about one-fifth of plans. The after-tax feature is more likely to be offered by large plans. Figure 5. Automatic enrollment design, 2016 defined contribution plans with automatic enrollment <250 Automatic enrollment adoption 250+ plans 1 45% 45% Default automatic enrollment rate 1 percent 5% 1% 2 percent 14 5 7 3 percent 38 43 44 4 percent 24 14 15 5 percent 5 19 13 6 percent or more 14 19 20 Default automatic increase rate 1 percent 6 52% 65% 2 percent 14 5 2 Voluntary election 5 33 24 Not offered 14 10 9 Default fund Target-date fund 95% 95% 9 Other balanced fund 5 5 2 Subtotal 10 10 99% Money market or stable value fund 1% Source:, 2017. defined contribution plans permitting catch-up contributions <250 250+ plans offering 99% 10 98% offered 98 100 99 using 40 30 12 Source:, 2017. Figure 7. defined contribution plans permitting Roth contributions <250 250+ plans offering 71% 91% 65% offered 86 96 68 using 14 16 13 Source:, 2017. Figure 8. defined contribution plans permitting after-tax contributions <250 250+ plans offering 1% 13% 18% offered 2 11 33 using 1 2 8 Source:, 2017. Roth contributions, 2016 After-tax contributions, 2016 firms > 3
Figure 9. Account balances are a widely cited measure of the overall effectiveness of. However, current balances may not reflect lifetime savings and are only a partial measure of retirement preparedness for many. The median balance represents the typical participant: Half of all have balances above the median and half have balances below. Managing participant accounts Figure 10. Participant investment decisions are a critical determinant of long-term growth of retirement savings. With the growing use of automatic enrollment in, an increasing number of are not making active investment choices but are defaulted into a sponsor-designated investment portfolio. Plan asset allocation shows the asset allocations as of December 31, 2016. Participant contribution allocation shows where 2016 contributions were allocated. The percentage of equities includes company stock, diversified equity funds, and the equity portion of balanced funds. Figure 9. Account balances, 2016 defined contribution plans $350,000 $0 $292,804 $81,455 <250 Average Median Source:, 2017. $200,747 $57,794 250+ $96,495 $24,713 Figure 10. Asset and contribution allocations, 2016 defined contribution plans Plan asset allocation Participant contribution allocation 10 66% equities* 8% 1 13% 71% equities 9% 9% 71% equities 11% 6% 68% equities 1 8% 12% 73% equities 6% 74% equities 6% 5% 18% 25% 28% 31% 43% 49% 46% 48% 41% 38% 3 3 5% <250 250+ 6% <250 250+ Brokerage Company stock Diversified equity funds Target-date funds Other balanced funds Bond funds Cash Source:, 2017.portion of balanceortion of balanced funds. 4 > firms
Figure 11. Participant investment decisions in DC plans occur within the context of a set or a menu of choices offered by the employer. In this figure, we count a series of target-risk or target-date funds as one fund since these funds are designed as a single-fund investment. Figure 11. Number of investment options offered, 2016 defined contribution plans 4 38% 36% 33% plans offering 2% 2% 1% 9% 19% 9% 1 5 6 10 11 15 16 20 21 25 26 30 31+ 29% Number of options 26% 23% 12% 26% 5% 11% 6% 6% <250 250+ Average funds offered 20.8 22.3 17.9 Median funds offered 19 21 16 <250 250+ Source:, 2017. firms > 5
Figure 12. Despite the large number of funds available to them, half of use only one fund. In this figure, we count each target-risk or target-date fund used as a separate fund, rather than considering them as one fund, as in Figure 11. This is because can, and some do, invest in multiple target-date or target-risk funds. Figure 13. Virtually all plans offer an array of investment options covering four major investment categories: equities, bonds, balanced funds, and cash reserves. Equity offerings typically include both indexed and actively managed U.S. stock funds as well as one or more international funds. Within each population, the first column shows the percentage of plans offering at least one investment in that category. The second column shows the percentage of using that type of option among offered that option. Figure 12. Number of investment options used, 2016 defined contribution plans 6 55% using 41% 46% 11% 1 11% 8%8% 9% 8%8% 8% 6% 6% 6% 5% 5% 4% 3% 4% 4% 4% 2% 1 2 3 4 5 6 7 8 9+ Number of funds <250 250+ Legal service <250 250+ Average funds used 3.6 3.3 2.7 Median funds used 2 2 1 Source:, 2017. 6 > firms
Figure 13. Types of investment options offered and used, 2016 defined contribution plans <250 250+ Percentage of plans offering offered using plans offering offered using plans offering offered using Cash 99% 24% 10 18% 99% 19% Money market 74 15 74 11 67 12 Stable value/investment contract 61 22 76 13 63 17 Bond funds 99% 3 10 28% 98% 2 Active 79 20 96 16 72 10 Index 89 20 94 19 89 16 Inflation-protected securities 47 6 63 4 33 4 High-yield 27 11 35 7 19 5 International 21 3 31 3 19 2 Balanced funds 10 71% 10 76% 99% 81% Traditional balanced 86 27 78 24 70 20 Target-risk 29 25 7 9 17 5 Target-date 85 55 98 64 92 74 Equity funds 99% 53% 10 5 99% 36% Domestic equity funds 99% 51% 10 48% 99% 35% Active domestic 94 40 98 35 94 23 Index domestic 99 39 100 38 99 28 Large-cap value 96 22 96 19 90 13 Large-cap growth 91 26 94 22 90 17 Large-cap blend 98 35 96 32 97 24 Mid-cap 96 27 96 22 89 17 Small-cap 96 22 96 21 88 13 Socially responsible 5 7 6 0 8 3 International equity funds 99% 31% 10 3 9 21% Active international 88 25 96 21 85 15 Index international 75 15 93 15 66 13 Emerging markets 37 8 50 8 32 7 Sector funds 5 16% 61% 13% 35% 1 REIT 42 13 50 11 31 7 Health care 20 15 17 12 11 8 Energy 8 11 2 9 7 6 Precious metals 3 3 0 0 4 2 Technology 4 7 13 10 2 8 Utilities 1 6 0 0 1 4 Natural resources 0 0 0 0 1 3 Financials 1 1 0 0 1 3 Communications 0 0 2 8 <0.5 6 Commodities 0 0 0 0 <0.5 5 Consumer 0 0 0 0 <0.5 2 Company stock 9% 48% Self-directed brokerage 34% 6% 5 2% 1 1% Managed account program 1 3% 3 3% 2 Source:, 2017. firms > 7
Figure 14. An important development in is the rising prominence of professionally managed allocations. Participants with professionally managed allocations are those who have their entire account balance invested in a single target-date or balanced fund or a managed account advisory service. These professionally managed investment options signal a shift in responsibility for investment decision-making away from the participant and toward employerselected investment and advice programs. By 2021, we expect that nearly three-quarters of all will be using a professionally managed allocation. Figure 15. Among new plan entrants ( entering the plan for the first time in 2016), the professionally managed allocation trend is even more pronounced. Figure 16. Target-date strategies continue to grow in importance in DC plan investment menus. The funds replace the complex task of portfolio construction with a simplified choice the choice of an expected date of retirement and provide automatic age-based rebalancing over time. They are likely to appeal to less sophisticated or less engaged investors looking for a streamlined portfolio choice, as well as to sponsors seeking a default investment for automatic enrollment. Figure 17. Participants invest in target-date funds in one of two ways. Pure investors hold a single target-date fund and no other investments. Mixed investors hold a target-date fund in combination with other investments, including other target-date funds. Figure 14. Participants with professionally managed allocations, 2016 Figure 15. Participants with professionally managed allocations, new plan entrants during the year, 2016 defined contribution plans 10 defined contribution plans 10 79% 85% 71% 5% 53% 34% 6% 42% 4 66% 7 81% 28% 38% 46% <250 250+ <250 250+ Single target-date fund Single balanced fund Managed account program Source:, 2017. Single target-date fund Single balanced fund Managed account program Source:, 2017. Note: 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. 8 > firms
Figure 16. Plan use of target-date funds, 2016 defined contribution plans <250 250+ all plans offering target-date funds 85% 98% 92% all recordkeeping assets in target-date funds 18% 25% 28% all contributions directed to target-date funds 31% 43% 49% all invested in target-date funds 49% 63% 72% Among plans offering target-date funds plan assets invested in target-date funds 21% 25% 29% plan contributions directed to target-date funds 35% 44% 5 Source:, 2017. Figure 17. Participant use of target-date funds, 2016 defined contribution using target-date funds <250 250+ all offered target-date funds 9 99% 9 using target-date funds when offered 55% 64% 74% participant account balances in target-date funds 53% 5 53% total participant and employer contributions in target-date funds 79% 79% 78% Distribution of percentage of participant assets in target-date funds 1% 24% 18% 16% 13% 25% 49% 9 9 8 5 74% 6 6 6 75% 99% 6 5 7 10 61 64 66 Distribution of percentage of total participant and employer contributions in target-date funds 1% 24% 9% 8% 8% 25% 49% 8 7 7 5 74% 5 4 4 75% 99% 2 3 5 10 76 78 76 owning One target-date fund only 5 61% 65% One target-date fund plus other funds 34 31 28 Two or more target-date funds only 3 3 2 Two or more target-date funds plus other funds 6 5 5 Source:, 2017. firms > 9
Figure 18. From an investment perspective, an average asset allocation to equities of approximately two-thirds or more may be appropriate in light of the long-term retirement objectives of most DC plan. However, the allocation to equities varies dramatically among. Extreme allocations of or 10 may be problematic, depending on individual circumstances. Figure 18. Distribution of equity exposure, 2016 defined contribution 4 35% 38% 6% 4% 4% 5% 3% 4% 3% 2% 4% 4% 4% 3% 1 6% 12% 11% 1 1 18% 16% 26% 8% 8% 9% 9% 8% 6% 1% 3 31% 4 41% 5 51% 6 61% 7 71% 8 81% 9 91% 99% 10 Percentage in equities <250 250+ <250 250+ DC plans Average percentage equities 7 75% 74% Median percentage equities 79 82 85 Source:, 2017. 10 > firms
Figure 19. Many in may lack the financial planning skills, time, or interest to make appropriate investment decisions. To address need for assistance with investment decisions, plan sponsors using as recordkeeper offer a range of advice programs, including Personal Online Advisor, an online advice service; Managed Account Program, a managed account advisory service; and Financial Planning Services. The online advice service and managed account program are provided by Financial Engines, a third-party advisor. The financial planning services are provided by Advisers, Inc. Each of these programs allows to include information about assets they have outside of the plan, which may affect the selection of in-plan investments. Figure 19. Advice offered, 2016 defined contribution plans 8 plans offering 22% 5 39% 3 2 61% 69% 6 1 Online advice Managed account advice Financial planning services age 55+ <250 250+ Source:, 2017. firms > 11
Accessing plan assets Figure 20. If permitted by the plan, can borrow up to 5 of their balance (up to a maximum of $50,000) from their DC plan account. Plan loans allow DC to access their plan savings before retirement without incurring income taxes or tax penalties. Figure 21. Plan withdrawals allow to access their plan savings before a job change or retirement. Withdrawals are optional plan provisions, and availability varies from plan to plan. Plan withdrawals are used infrequently in the aggregate. Certain could, over time, jeopardize their retirement program if they continue to rely on this feature throughout their working careers. Figure 20. Participant loans, 2016 defined contribution plans offering loans <250 250+ Outstanding loans with outstanding loans 13% 11% 16% account balance in loans 8% 11% Average loan balance 13,820 13,601 9,693 Number of outstanding loans per participant 0 loans 8 89% 84% 1 loan 8 7 12 2 loans 4 3 3 3+ loans 1 1 1 Source:, 2017. Figure 21. Participant in-service withdrawals, 2016 defined contribution plans offering in-service withdrawals <250 250+ using 3.1% 1.9% 3.4% assets withdrawn 1.0 0.7 0.9 participant account assets withdrawn 28.6 34.5 32.3 Source:, 2017. 12 > firms
Methodology participation and deferral rates Data on participation and deferral rates is drawn from a subset of recordkeeping clients for whom we perform nondiscrimination testing. Selected plan design features are also derived from this data. For the 2016 analysis, the subset is composed of plans that complete their testing by March and represents approximately one-third of the clients for whom we perform testing. Plans that complete their testing by March generally have lower participation rates and generally include plans with concerns related to passing testing. When all plans have completed their testing by the end of 2017, the participation rates improve. Plan design features derived from this data also improve. Interestingly, the deferral rates do not change significantly. Based on the trends experienced over the prior three years, we have estimated participation rates for 2016. The estimations use a combination of linear extrapolation and subjective estimation. The same approach is applied to plan design features derived from this data. We will continue to restate these results in the following year based on the final compliance testing results. Industry-specific supplements Benchmark data supplements to How America Saves are available for the following sectors: Ambulatory health care services Architecture and engineering Finance and insurance Information Manufacturing Mining, oil, and gas extraction Technology If the sector you are interested in is not available at this time, please contact your sales executive or relationship manager. Acknowledgments We extend our thanks to the following crew members who made this publication possible: Jeffrey W. Clark William G. Doughty John A. Lamancusa Daniel C. Proctor Jean A. Young firms > 13
Institutional Investor Group P.O. Box 2900 Valley Forge, PA 19482-2900 Connect with > institutional.vanguard.com > global.vanguard.com (non-u.s. investors) research > Center for Investor Research Investment Strategy Group All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. The Group has partnered with Financial Engines Advisors LLC to provide subadvisory services to the Managed Account Program and Personal Online Advisor. Financial Engines Advisors LLC is an independent, federally registered investment advisor that does not sell investments or receive commission for the investments it recommends. Advice is provided by Advisers, Inc. (VAI), a federally registered investment advisor and an affiliate of The Group, Inc. (). Eligibility restrictions may apply. Neither, Financial Engines, nor their respective affiliates guarantee future results. Financial Planning Services are provided by Advisers, Inc., a registered investment advisor. 2017 The Group, Inc. All rights reserved. HASLAW 062017