2. June 2011
Defined contribution (DC) retirement
plans are the centerpiece of the
private-sector retirement system
in the United States. More than
60 million Americans are covered
by DC plans, with assets now in
excess of $4 trillion.

3. Vanguard is at the forefront of the DC marketplace with more than $400
billion in DC plan assets. In our full-service DC recordkeeping business
alone we serve 1,700 plan sponsors and more than 3 million participants.
As an industry leader, Vanguard recognizes that it’s important to have
a detailed understanding of DC plans and the role they play in the U.S.
retirement system. Accordingly, we are pleased to present How America
Saves 2011: A report on Vanguard 2010 defined contribution plan data.
In this tenth edition, we update our analysis of DC plans and participant
behavior, based on 2010 Vanguard recordkeeping data.
The first edition of How America Saves was published in 2000, based on
1999 Vanguard recordkeeping data. Initially the publication was updated
R. Gregory Barton biennially. However, our readers requested more frequent updates, so
Managing Director in 2004 we began publishing annually. This year we are pleased to further
Institutional Investor Group
enhance the value of the report by introducing a series of benchmark
data supplements for selected industry sectors. A list of the sectors
we are covering in the series is on page 89.
Average participant account balances have now recovered, and at year-end
2010, reached their highest level since we began tracking this data in 1999
in the first edition of How America Saves. We are pleased to report that
overwhelmingly participants “stayed the course” throughout the great
recession; their saving and investment behavior changed only marginally.
We are confident that this report will continue to serve as a valuable
reference tool and that our observations will prove useful as your
organization continues to develop its retirement programs.
Sincerely,
1

4. Contents
4 Executive summary
7 Market overview
8 Highlights at a glance
9 DC retirement plans
10 Accumulating plan assets
40 Managing participant accounts
72 Accessing plan assets
88 Figure index
89 Methodology
89 Acknowledgements

5. Accumulating Managing Accessing
12 Plan design 42 Asset and contribution allocations 74 Plan loans
14 Employer contributions 49 Plan investment options 78 Plan withdrawals
18 Automatic enrollment designs 56 Target-date funds 79 Plan distributions and rollovers
21 Participation rates 62 Other investment features 85 Access methods and the internet
26 Employee deferrals 66 Investment returns
34 Aggregate contribution rates 68 Exchange activity
36 Account balances
3

6. Executive summary
During 2007–2010, plan participants endured a twofold from 3 in 10 at year-end 2005. Forty-two
substantial period of stock market volatility associated percent of all participants use target-date funds.
with the global financial crisis, including a decline of Forty-eight percent of participants owning target-date
stock prices of more than half. As of year-end 2010, funds have 100% of their account in a single target-
the U.S. stock market remained 20% below its peak date fund. Twenty percent of all Vanguard participants
of October 2007. Despite the exceptional volatility are wholly invested in a single target-date fund,
that marked the period, the saving and investment either by voluntary choice or by default.
behavior of defined contribution (DC) plan participants
changed only marginally. In many ways, DC plan An important factor driving use of target-date funds
participants’ lack of response to recent volatility is is their role as an automatic or default investment
striking, although it is not surprising, given the inertia strategy. The qualified default investment alternative
associated with much retirement savings behavior. (QDIA) regulations established by the Pension
During this interval, inertia likely benefited many Protection Act of 2006 (PPA) continue to drive adoption
participants. As we move beyond the 2008–2009 of target-date funds. As of year-end 2010, 6 in 10
crisis period, the challenges remain largely the Vanguard DC plans have designated a QDIA, whether
same: improving plan contribution rates and for automatic enrollment or other default purposes.
portfolio diversification. Of plans choosing a QDIA, 89% have selected a
target-date fund and 11% a balanced fund as their
Improved account balances default investment. The QDIA regulations have had
a major influence on default investment strategies
In 2010, median ($26,926) and average ($79,077)
for plans offering automatic enrollment. Only 1%
account balances reached their highest level since we
of Vanguard plans with automatic enrollment still use
began tracking this data in 1999 in How America Saves.
a money market or stable value fund as their default
In 2010, median account balances rose by 16% and
investment, down from 25% in 2005.
average balances rose by 14% from 2009 levels as
a result of improving markets and the impact of
ongoing contributions. The majority of participants Professionally managed allocations
had account balances at year-end 2010 that were An important development in DC plans is the rising
higher than they were in 2007. We examined the prominence of professionally managed allocations.
change in account balances for continuous Participants with professionally managed allocations
participants—those with a balance at both year-end are those who have their entire account balance
2007 and year-end 2010. Among this group, the invested solely in a single target-date or balanced fund
median account balance rose by 31% during this period, or a managed account advisory service. At year-end
reflecting the dual effect of improving investment 2010, 29% of all Vanguard participants were solely
returns and ongoing contributions. Over this three-year invested in an automatic investment program—
period, 8 in 10 participants saw account balances stay compared with just 9% 5 years ago. Twenty percent
flat or rise. of all participants were invested in a single target-date
fund; another 6% held one traditional balanced fund;
Growth in use of target-date funds and 3% used a managed account program. These
diversified, professionally managed investment
Target-date funds’ importance in DC plans continues
portfolios have the potential to dramatically improve
to grow. Seventy-nine percent of plan sponsors offered
portfolio diversification for these participants.
target-date funds at year-end 2010, up more than
4 Executive summary

7. High-level savings metrics About half of all contributing participants in 2010
High-level metrics of participant savings behavior were in plans with automatic enrollment, although
declined slightly in 2010. The 2010 plan participation the automatic enrollment feature was typically applied
rate was 74%, down 2 points from 2009 and back to only to new plan entrants. Three-quarters of automatic
levels last seen in 2004. Increases in plan participation enrollment plans have implemented automatic annual
related to the growing use of automatic enrollment deferral rate increases, up from about one-third in
were more than offset by declines in participation 2005. Almost all plans with automatic enrollment
caused by difficult economic conditions. The average (99%) default participants to a balanced investment
deferral rate in 2010 was 6.8% and the median was strategy—with 9 in 10 choosing a target-date fund
6.0%, unchanged from 2009. However, average as the default.
deferral rates have declined from their peak in 2007
of 7.3%. We estimate that about half of the decline Roth 401(k) adoption
in contribution rates is likely caused by economic At year-end 2010, the Roth feature was adopted by
conditions, and half is attributable to increased 4 in 10 Vanguard plans and 9% of participants within
adoption of automatic enrollment. While automatic these plans had elected the option. We anticipate
enrollment increases participation rates, it also leads steady growth in Roth adoption rates, given the
to declining plan contribution rates, because default Congressional action making the provision permanent
deferral rates are typically set at 3% or lower. and the tax diversification benefits the feature affords.
While aggregate savings statistics have weakened
Presence of index core options
modestly, there has been a marked increase in
participation rates among lower-income, younger, Given the growing focus on plan fees, there is
and newly hired employees—again attributable to increased interest among plan sponsors in offering
automatic enrollment. Participants earning less than a wider range of low-cost passive or index funds.
$30,000 had a participation rate of 50% in 2010, A “passive core” is a comprehensive set of low-cost
up 7 percentage points from 2005. Similarly, the index options that span the global capital markets.
participation rate for employees younger than 25 In 2010, 40% of Vanguard plans offered a set of
rose to 41% in 2010, up from 30% in 2005. options providing an index core. Because large plans
have adopted this approach more quickly, about half
of all Vanguard participants were offered an index
Steady use of automatic savings features
core as part of the overall plan investment menu.
While the adoption of automatic enrollment has
more than quadrupled since year-end 2005, growth
Shift in participant investment allocations
in calendar-year 2010 was more modest. At year-end
2010, 24% of Vanguard plans had adopted automatic The percentage of plan assets invested in equities
enrollment, up 3 percentage points from 2009. It rose to 68% in 2010, up from 66% in 2009. Equity
remains to be seen whether the slowdown in plan allocations were five points below the 73% reached
sponsor adoption of automatic enrollment is related at year-end 2007, just after the peak of global stock
to current economic conditions or if adoption prices. We estimate that over the 2007–2010 period,
of the feature has reached a plateau. In 2010, 45% 2 points of the decline came from traders shifting
of large plans had an automatic enrollment feature, assets to fixed income holdings on a net basis, while
compared with 43% in 2009. 3 points came from declining stock prices.
Executive summary 5

8. Equity allocations continue to vary dramatically implemented under the PPA; and ongoing
among participants. One in 5 participants has taken communications about company stock risk, also
an extreme position, holding either 100% in equities required under the PPA.
(13% of participants) or no equities (9% of participants).
Rise in loan activity
Participant contributions to equities also declined
New loan issuance rose in 2009 and 2010, returning
from 74% in 2007 to 70% in 2010. New participants
to prerecession levels of 2005. In 2010, 18% of
enrolling in 2008 and 2009 tended to adopt more
participants had a loan outstanding and the average
conservative equity allocations. This was somewhat
loan balance was $9,000. Only about 2% of aggregate
offset by the rising use of target-date funds by new
plan assets were borrowed by participants.
participants. New participants enrolling in 2010
invested 54% of contributions to target-date funds.
Growth of in-service withdrawals
Participant trading muted The number of hardship withdrawals grew 47%
over the 2005–2010 period; however, at 2.2% of
In 2010, participants’ trading activity was at the lowest
participants in 2010, the percentage of participants
level observed since we began tracking this data in
taking hardship withdrawals is still low on an absolute
1999 in How America Saves. During 2010, only 12%
basis. The number of in-service nonhardship
of DC plan participants traded in their accounts, while
withdrawals also grew over this period by 56%. During
88% did not. This measure of trading by plan
2010, 4% of participants took an in-service withdrawal,
participants declined by a quarter compared with 2008,
taking about 30% of their account balances. All
when 16% of plan participants traded. On a net basis,
in-service withdrawals during 2010 amounted to
traders shifted 1.1% of assets to fixed income in 2010,
1% of aggregate plan assets. In general, the recent
with most traders making small changes to their
weak economic conditions appeared to be affecting
portfolios. Only 1% of all participants actually
a small minority of participants.
abandoned equities during the year—that is, shifted
from a portfolio with some equity exposure to an all-
fixed income portfolio. Overall, trading levels remain Assets largely preserved for retirement
low. The majority of participants make no trades in Participants separating from service largely preserved
a given year—not even to rebalance their account their assets for retirement. In 2010, 8% of participants
to a target asset allocation. left their employer and were eligible for a distribution.
The majority of these participants (70%) continued to
Fall in company stock exposure preserve their plan assets for retirement by either
remaining in their employer’s plan or rolling over their
A shift away from company stock holdings first
savings to an IRA or new employer plan. In terms of
observed in 2006 continued into 2010. Among plans
assets, 92% of all plan assets available for distribution
offering company stock, the number of participants
were preserved and only 8% were taken in cash.
holding a concentrated position of more than 20%
of their account balance fell from 42% in 2005 to
31% in 2010. Possible reasons for this change include:
continued fiduciary litigation surrounding company
stock exposure; plan sponsor easing of company stock
restrictions in response to the diversification rules
6 Executive summary

9. Market overview
The U.S. equity market, as represented by the SP 500 reported that the U.S. recession officially ended in
Index closing value, rose 25% from 2005 through July 2009, several months after the market trough.
October 2007, when stock prices reached an historic The unemployment rate was 4.9% in December 2005,
peak (Figure 1). As the mortgage and financial system peaked at 10.1% in October 2009, and was at 9.4%
crisis unfolded in the United States, stock prices then in December 2010.
fell 57% through March 2009. From the March 2009
lows, the U.S. market subsequently rebounded 86% Stock prices were exceptionally volatile during
through year-end 2010, reaching the same level as the economic downturn and the period of financial
year-end 2005. As of year-end 2010, the SP 500 system instability. Historically, 1% of stock market
Index remained 20% below its October 2007 peak.1 trading days are associated with a change in stock
prices of greater than +/– 3%. In 2008, 16.8% of
During this period, the National Bureau of Economic trading days were characterized by this level of
Research (NBER) reported that a severe recession had volatility; in 2009 it was 8.9% of trading days. In 2010,
begun in December 2007 as a result of the mortgage only 3.2% of trading days had a volatility level of greater
and financial system crisis, just a few months after than +/– 3%. While stock market volatility moderated
the stock market peak. The NBER subsequently somewhat in 2010, it remains higher than in 2005–2006.
Figure 1. SP 500 daily close
1700
Recessionary period
500
Dec. Dec. Dec. Dec. Dec. Dec.
2005 2006 2007 2008 2009 2010
Source: SP 500.
Past performance is no guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest
directly in an index.
1 These changes reflect only the price index level; the total return of buy-and-hold stock market investors would also have included reinvested dividends.
Executive summary 7

10. Figure 2. Highlights at a glance
Plan design 2006 2007 2008 2009 2010
Percentage of plans offering immediate eligibility for employee contributions 44% 51% 53% 52% 52%
Percentage of plans requiring one year of service for matching contributions 33% 34% 29% 23% 25%
Percentage of plans providing an employer contribution 91% 95% 94% 92% 85%
Percentage of plans with automatic enrollment 10% 15% 19% 21% 24%
Percentage of plans offering Roth contributions 12% 24% 31% 37% 42%
Percentage of plans offering catch-up contributions 90% 91% 92% 95% 96%
Percentage of plans offering after-tax contributions 20% 20% 20% 19% 19%
Participation rates
Plan-weighted participation rate 75% 76% 77% 76% 74%
Participant-weighted participation rate 66% 68% 73% 73% 68%
Percentage of participants using Roth (where offered) 5% 6% 7% 7% 9%
Percentage of participants using catch-up contributions (where offered) 14% 12% 13% 12% 13%
Percentage of participants using after-tax (where offered) 9% 9% 9% 8% 7%
Contribution rates
Average participant deferral rate 7.3% 7.3% 7.0% 6.8% 6.8%
Median participant deferral rate 6.0% 6.0% 6.0% 6.0% 6.0%
Percentage of participants deferring more than 10% 24% 23% 22% 21% 21%
Percentage of participants reaching 402(g) limit ($16,500 in 2010) 10% 10% 10% 9% 9%
Average total contribution rate (participant and employer) 10.9% 10.7% 10.6% 9.8% 9.7%
Median total contribution rate (participant and employer) 10.0% 10.0% 9.8% 9.0% 8.8%
Account balances
Average balance (typical of participants at about the 75th percentile) $75,791 $78,411 $56,030 $69,084 $79,077
Median balance $25,953 $25,196 $17,399 $23,140 $26,926
Allocation
Average plan asset allocation to equities 73% 73% 61% 66% 68%
Average plan contribution allocation to equities 72% 74% 73% 68% 70%
Percentage of participants with extreme asset allocations (100% fixed income or equity) 32% 28% 27% 25% 22%
Plan investment options
Average number of funds offered target-date and target-risk counted as one option 16.9 17.6 17.9 18.3 18.6
Average number of funds used 3.6 3.6 3.4 3.4 3.3
Percentage of plans actively offering company stock 11% 11% 11% 11% 11%
Percentage of all participants using company stock 25% 22% 22% 21% 20%
Percentage of participants with more than 20% of their account in company stock 14% 12% 11% 11% 10%
Percentage of plans offering target-date funds 43% 58% 68% 75% 79%
Percentage of all participants using target-date funds 10% 18% 28% 34% 42%
Percentage of all participants with professionally managed allocations 12% 17% 22% 25% 29%
Percentage of plans offering an index core 31% 33% 36% 38% 40%
Percentage of participants trading 14% 15% 16% 13% 12%
Loans
Percentage of plans offering loans 74% 75% 74% 75% 75%
Percentage of participants with an outstanding loan (where loans are offered) 17% 16% 16% 16% 18%
Percentage of total recordkeeping assets borrowed 2% 2% 2% 2% 2%
Withdrawals
Percentage of plans offering withdrawals 79% 80% 80% 81% 81%
Percentage of participants using withdrawals (where withdrawals are offered) 3% 3% 3% 3% 4%
Percentage of total recordkeeping assets withdrawn 1% 1% 1% 1% 1%
Percentage of participant account balance withdrawn 28% 30% 33% 33% 30%
Plan distributions and rollovers
Percentage of terminated participants preserving assets 71% 71% 69% 69% 70%
Percentage of assets preserved that were available for distribution 92% 93% 92% 92% 92%
Participant access methods
Percentage of participants not contacting Vanguard during the year 46% 44% 43% 47% 47%
Percentage of participants registered for internet account access 49% 58% 59% 62% 64%
Percentage of participant account transactions processed via the internet 69% 69% 72% 76% 80%
Source: Vanguard, 2011.
8 Executive summary

11. DC retirement plans
DC plans are the dominant type of retirement plan holdings among the major asset classes. As with
sponsored by private-sector employers in the United deferral decisions, many such investment decisions
States, covering nearly half of all private-sector are increasingly influenced by employer-established
workers. Although there is still a significant minority defaults. These investment decisions—including
of individuals eligible for such plans who fail to the types of investment options offered by the plan
participate in them, DC plans have nonetheless and the choices participants or employers make
enabled millions of American workers to accumulate from among those options—have a direct impact
savings for retirement. on account performance over time. Thus, investment
choices, in conjunction with the level of plan
The performance of DC plans can be measured contributions, ultimately influence participants’
in several ways: level of retirement readiness.
Accumulating plan assets. The level of plan Accessing plan assets. Participants may be able
contributions is fundamental to retirement savings to take a loan or in-service withdrawal to access
adequacy. Plan contributions are affected by employee their savings while working. When changing jobs
participation rates, participant deferral rates, and the or retiring, they typically have the option of remaining
value of employer contributions. Participant deferral in the plan, rolling over to another plan or IRA, or taking
behavior is increasingly influenced by employers’ a cash lump sum.
automatic enrollment default designations. Overall
retirement plan design varies substantially across Our analysis shows that, despite a quite volatile
employers—and variation in the level of employer market and economic environment in recent years,
contributions does impact the employee contributions most Vanguard DC plan participants have seen their
needed to accumulate sufficient retirement savings. retirement savings grow over three- and five-year
periods. Meanwhile, most metrics of participant
Managing participant accounts. After deciding to behavior have returned to prerecession levels
contribute to a retirement savings plan, participants’ in 2010.
most important decision is how to allocate their
Executive summary 9

12. 1 ccumulating plan assets
A

13. Historically employees have had to
decide whether to participate and at
what rate to save. Increasingly employers
are making these decisions through
automatic enrollment.

14. Plan design Figure 3. Eligibility, 2010
Nine in 10 Vanguard-administered DC plans permit
pre-tax elective deferrals by eligible employees. Vanguard defined contribution plans permitting
employee-elective deferrals
Employee deferral decisions are shaped by the
design of the DC plan sponsored by their employer. Elective-employee contributions
DC plans with employee-elective deferrals can be 70%
grouped into four categories based on the type of
56%
employer contributions made to the plan: (1) plans 52%
with matching contributions, (2) plans with
nonmatching employer contributions, (3) plans with
both matching and nonmatching contributions, and
finally, (4) plans with no employer contribution at all. 21%
Nonmatching contributions are typically structured 16% 15%
11%
as a variable or fixed profit-sharing contribution, 8% 8% 9%
4%
or less frequently as an employee stock ownership
0
plan (ESOP) contribution. Immediate 1 month 2–3 4–6 1 year
months months
In employee-contributory DC plans, employer
Employer-matching contributions
contributions are typically a secondary source
of plan funding. Both the type and size of employer 70%
contributions vary substantially across plans.
Eligibility 43% 42%
In 2010, more than half (52%) of Vanguard plans
allowed employees to make voluntary contributions
25% 25%
immediately after they joined their employer (Figure 3). 23%
Larger plans were more likely to offer immediate 14%
11%
eligibility than smaller plans were; as a result, 56% of 7% 7%
3%
employees qualified for immediate eligibility in 2010. 0
Immediate 1 month 2–3 4–6 1 year
months months
At the other extreme, 15% of plan sponsors required
eligible employees to have one year of service before
Other employer contributions
they could make employee-elective contributions to
their plan. Smaller plans were more likely to impose 70%
the one-year wait; as a result, only 11% of total
56%
eligible employees were subject to this restriction.
45%
Eligibility rules are more restrictive for employer
32%
contributions, including matching contributions and
other types of employer contributions, such as profit- 20%
sharing or ESOP contributions. A one-year eligibility
11% 11%
rule is much more common for employer contributions, 9% 9%
3% 4%
presumably because employers want to minimize
0
compensation costs for short-tenured employees. Immediate 1 month 2–3 4–6 1 year
months months
Percentage of plans Percentage of employees
Source: Vanguard, 2011.
12 Accumulating plan assets

15. Vesting In 2010, 4 in 10 plans immediately vested participants
In 2010, almost half of plans (46%) immediately for other employer contributions, such as profit-
vested participants in employer-matching sharing or ESOP contributions. Large plans are
contributions (Figure 4). Large plans are slightly more likely to immediately vest participants for other
more likely to offer immediate vesting and just employer contributions and 45% of participants with
more than half (51%) of participants are in plans other employer contributions receive immediate
with immediate vesting of employer-matching vesting. On the other hand, 4 in 10 plans with other
contributions. Smaller plans are more likely to use employer contributions use a 5- or 6-year graded
longer vesting schedules. About one-third of plans vesting schedule and one-quarter of participants
with employer-matching contributions use a 5- or receiving other employer contributions are in plans
6-year graded vesting schedule. One in 5 participants with longer vesting schedules.
with employer-matching contributions is in a plan
with a longer vesting schedule.
Figure 4. Vesting, 2010
Vanguard defined contribution plans with employer contributions
Employer-matching contributions
70%
51%
46%
17%
15% 14%
11% 10%
9%
4% 4% 3% 3% 2% 4%
2% 1% 2% 2%
0
Immediate 1-year cliff 2-year cliff 3-year cliff 2-year 3-year 4-year 5-year 6-year
graded graded graded graded graded
Other employer contributions
70%
45%
39%
24%
22%
18%
14% 15%
8%
4%
1% 0% 2% 1% 0% 2% 1% 2% 2%
0
Immediate 1-year cliff 2-year cliff 3-year cliff 2-year 3-year 4-year 5-year 6-year
graded graded graded graded graded
Percentage of plans Percentage of participants
Source: Vanguard, 2011.
Accumulating plan assets 13

16. Employer contributions These statistics summarize the incidence of employer
contributions to a DC plan that accepts employee
Four in 10 Vanguard plans provided only a matching
deferrals. They do not necessarily reflect the entire
contribution in 2010, and this type of design covered
retirement benefits program funded by certain
56% of participants (Figure 5). One-third of plans,
employers. Some employers may offer a companion
covering 37% of participants, provided both a
employer-funded plan—such as a defined benefit (DB)
matching and a nonmatching employer contribution.
plan, or a stand-alone profit-sharing, ESOP, or money
Eight percent of plans provided only a nonmatching
purchase DC plan—in addition to an employee-
employer contribution, and 2% of participants were contributory DC plan.
in this type of design. Finally, 15% of plans made
no employer contributions of any kind in 2010,
Matching contributions
and 5% of participants were in this category.
The wide variation in employer contributions is most
evident in the design of employer-matching formulas.
As noted previously, eligibility for employer
In 2010, Vanguard administered more than 200
contributions is typically more restrictive than
distinct match formulas for plans offering an employer
eligibility for employee-elective deferrals. In 2010,
match. Among plans offering a matching contribution
a higher proportion of plans imposed a one-year in 2010, three-quarters (covering 60% of participants)
waiting period on employer contributions, whether in provided a single-tier match formula, such as $0.50
the form of a matching or other type of contribution, on the dollar on the first 6% of pay (Figure 6). Less
than imposed a one-year waiting period on employee- common, used by 15% of plans (covering one-third
elective deferrals. of participants), were multitier match formulas, such
as $1 per dollar on the first 3% of pay and $0.50
per dollar on the next 2% of pay.
Figure 5. Types of employer contributions, 2010
Another 7% of plans (covering 4% of participants)
Vanguard defined contribution plans permitting had a single- or multitier formula, but imposed
employee-elective deferrals
a maximum dollar cap on the employer contribution,
Type of employer Percentage Percentage such as $2,000. Finally, a very small percentage
contribution of plans of participants of plans used a match formula that varied by age,
Matching contribution only 42% 56% tenure, or other variables.
Nonmatching contribution only 8 2
Both matching and other The matching formula most commonly cited as
nonmatching contribution 35 37 a typical employer match is $0.50 on the dollar on
Subtotal 85% 95% the first 6% of pay. This is the match most commonly
No employer contribution 15% 5% offered among Vanguard DC plans and most
commonly received by Vanguard DC plan participants.
Source: Vanguard, 2011.
Figure 6. Types of matching contributions, 2010
Vanguard defined contribution plans with matching contributions
Percentage Percentage
Match type Example of plans of participants
Single-tier formula $0.50 per dollar on 6% of pay 77% 60%
Multitier formula $1.00 per dollar on first 3% of pay; $0.50 per dollar on next 2% of pay 15 35
Dollar cap Single- or multitier formula with $2,000 maximum 7 4
Other Variable formulas based on age, tenure, or similar variables 1 1
Source: Vanguard, 2011.
14 Accumulating plan assets

17. Figure 7. Distribution of promised matching contributions, 2010
Vanguard defined contribution plans permitting employee-elective deferrals with a single- or multitier match formula
45%
42%
Average (median) value of promised match: 3.9% (3.0%)
37%
24%
19%
14%
12%
10%
7% 8% 9%
5% 6%
4%
1% 0% 2%
0
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%+
to 0.99% to 1.99% to 2.99% to 3.99% to 4.99% to 5.99% to 6.99%
Maximum value of match (percentage of pay)
Percentage of plans Percentage of participants
Source: Vanguard, 2011.
In fact, among plans offering a match, 26% provided Figure 8. Promised matching contributions
exactly this match formula in 2010, covering 16%
of participants. Vanguard defined contribution plans permitting employee-elective
deferrals with a single- or multitier match formula
Given the multiplicity of match formulas, one way
to summarize matching contributions is to calculate 10%
the maximum value of the match promised by the
employer. For example, a match of $0.50 on the dollar
on the first 6% of pay promises the same matching
contribution—3% of pay—as a formula of $1 per
dollar on the first 3% of pay.
4.1% 4.2% 4.2% 4.0% 3.9% 3.9%
3.5% 3.5%
The promised value of the match varies substantially 3.0% 3.0% 3.0% 3.0%
from plan to plan. Among plans with single- or
multitier match formulas, two-thirds (covering two-
thirds of participants) promised a match of between
3% and 6% of pay (Figure 7). Most promised matches 0
2005 2006 2007 2008 2009 2010
ranged from 1% to 6% of pay. The average value
of the promised match was 3.9% of pay; the median Average Median
value, 3.0%. Average and median promised matches Source: Vanguard, 2011.
have remained fairly stable between 2005 and 2010
(Figure 8).
Accumulating plan assets 15

18. Figure 9. Employee contributions for maximum match, 2010
Vanguard defined contribution plans permitting employee-elective deferrals with a single- or multitier match formula
70%
61% Average (median) value of employee contribution
to maximize employer match: 7.3% (6.0%)
51%
18%
13%
11%
9% 8%
6% 7%
2% 3% 3% 3% 2%
1% 0% 1% 0% 0% 1%
0
1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%+
to 1.99% to 2.99% to 3.99% to 4.99% to 5.99% to 6.99% to 7.99% to 8.99% to 9.99%
Employee contribution for maximum match (percentage of pay)
Percentage of plans Percentage of participants
Source: Vanguard, 2011.
Another way to assess matching formulas is to Figure 10. Employee contributions for maximum match
calculate the employee-elective deferral needed to
realize the maximum value of the match. In 2010, Vanguard defined contribution plans permitting employee-elective
8 in 10 plans (covering 8 in 10 participants) required deferrals with a single- or multitier match formula
participants to defer between 4% and 7% of their
10%
pay to receive the maximum employer-matching
contribution (Figure 9). The average employee-elective
8.0%
deferral required to maximize the match was 7.3% 7.8% 7.8%
7.3% 7.1% 7.3%
of pay; the median value, 6.0%. The average
employee-elective deferral required to maximize 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
the match declined slightly between 2005 and 2010;
however, the median deferral required remained
constant at 6.0% (Figure 10).
Other employer contributions
As noted previously, in a minority of plan designs,
0
employers may make another contribution to the 2005 2006 2007 2008 2009 2010
accounts of eligible employees in the form of a
Average Median
variable or fixed profit-sharing contribution or an
ESOP contribution. These contributions, unlike Source: Vanguard, 2011.
matching contributions, may be made on behalf
16 Accumulating plan assets

19. Figure 11. Other employer contributions, 2010
Vanguard defined contribution plans with other employer contributions
30%
Average (median) value of other
employer contribution: 4.5% (4.0%)
24%
22%
15%
14%14% 14%
13%
11% 11%
10%
9%
8%
6% 6%
5%
4% 4%
3% 3%
2%
1% 1%
0
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%+
to 0.99% to 1.99% to 2.99% to 3.99% to 4.99% to 5.99% to 6.99% to 7.99% to 8.99% to 9.99%
Value of other employer contribution (percentage of pay)
Percentage of plans Percentage of participants
Source: Vanguard, 2011.
of eligible employees whether or not they actually Figure 12. Other employer contributions
contribute any part of their pay to the plan. As with
matching contributions, eligibility is more restrictive Vanguard defined contribution plans
for these types of employer contributions—many with other employer contributions
employees are not entitled to receive these
10%
contributions until they complete one year
of service.
The value of other employer contributions also varies
significantly from plan to plan. Among plans offering
such contributions in 2010, half provided all participants 4.7% 4.5% 4.5%
with a contribution based on the same percentage of 4.0% 3.9% 3.7% 3.9% 4.0%
3.4%
pay, while the other half varied the contribution by age 3.0% 3.0% 3.0%
and/or tenure. These nonmatching contributions varied
in value from about 1% of pay to more than 10%
of pay (Figure 11). Among plans with a nonmatching
employer contribution, the average contribution was 0
2005 2006 2007 2008 2009 2010
equivalent to 4.5% of pay; the median contribution,
4.0% of pay. Average Median
Source: Vanguard, 2011.
Between 2007 and 2009, the average value of other
employer contributions was about 20% lower than
in 2005 and 2006. In 2010, the average value of
other employer contributions rebounded to
prerecession levels (Figure 12).
Accumulating plan assets 17

20. Figure 13. Maximum pre-tax contribution limit, 2010
Vanguard defined contribution plans permitting employee-elective deferrals
70%
49%
34%
32%
23%
12%
10% 10%
8%
4% 3% 3% 3%
1% 2% 2% 2% 1% 1%
0% 0%
0
10% 10%–19% 20%–29% 30%–39% 40%–49% 50%–59% 60%–69% 70%–79% 80%–89% 90%+
Percentage of plans Percentage of participants
Source: Vanguard, 2011.
Maximum employee contribution limit Figure 14. Automatic enrollment adoption
Many plans have incorporated expanded contribution
limits authorized in the Economic Growth and Tax Vanguard defined contribution plans
Relief Reconciliation Act of 2001 (EGTRRA). Eighty-two permitting employee-elective deferrals
percent of DC plans (covering 89% of participants)
have raised to 50% or more the maximum percentage 30%
of pay that employees can contribute to their plans
24%
(Figure 13).
21%
19%
Automatic enrollment designs
15%
In a typical 401(k) or 403(b) plan, employees must make
an active choice to join the plan. The enrollment decision 10%
is framed as a positive election: “Decide if you’d like
to join.” Why do employees fail to take advantage of 5%
their employers’ plans? Research in the field of
behavioral finance provides a number of explanations: 0
2005 2006 2007 2008 2009 2010
• ack of planning skills. Some employees are not
L
Source: Vanguard, 2011.
active, motivated decision-makers when it comes
to retirement and financial planning. They lack
the skill to plan effectively for the future and find
it difficult to defer gratification and pursue long-
term goals.
18 Accumulating plan assets

21. Figure 15. Automatic enrollment design by plan size, 2010
Vanguard defined contribution plans with automatic enrollment
Number of participants
All 1,000 1,000–4,999 5,000+
Percentage of plans with employee-elective
contributions offering 24% 16% 48% 45%
Percentage of participants in plans offering 47 27 51 49
For plans offering automatic enrollment
Percentage of plans with automatic enrollment,
automatic savings rate increases, and a balanced default fund 75% 78 74% 67%
Percentage of plans with automatic enrollment
and a balanced default fund 24 20 26 33
Percentage of plans with automatic enrollment,
automatic savings rate increases, and a money market
or stable value default fund 1 1 0 0
Percentage of plans with automatic enrollment
and a money market or stable value default fund 0 1 0 0
Source: Vanguard, 2011.
• efault decisions. Faced with a complex choice
D a balanced fund. Under an autopilot plan, the decision
and unsure what to do, many individuals often to save is framed negatively: “Quit if you like.” In
take the default or “no decision” choice. In the such a design, “doing nothing” leads to participation
case of a voluntary savings plan, which requires in the plan and investment of assets in a long-term
that a participant take action in order to sign up, retirement portfolio.
the “no decision” choice is a decision not to save.
• nertia and procrastination. Many individuals deal
I As of December 2010, one-quarter of Vanguard plans
with a difficult choice by deferring it to another permitting employee-elective deferrals had adopted
day. Eligible nonparticipants, unsure of what to components of an autopilot design (Figure 14). Large
do, decide to postpone their decision. While many plans are more likely to implement automatic
employees know they are not saving enough and enrollment, with more than 45% of midsized and
express an interest in saving more, they simply large plans using the feature. As a result, almost half
never get around to joining the plan or, if they join, of all participants are now in plans with autopilot
to increasing their contribution rates. designs, although automatic enrollment itself typically
only applies to newly eligible participants (Figure 15).
Automatic enrollment or autopilot designs reframe Adoption of automatic enrollment designs grew only
the savings decision. With an autopilot design, modestly in 2010, and by the end of 2010 almost
individuals are automatically enrolled into the plan, their half of large plans had added the feature. It remains
deferral rates are automatically increased each year, to be seen when the economy improves whether or
and their contributions are automatically invested in not adoption of automatic enrollment will grow
rapidly again.
Accumulating plan assets 19

22. Among plans automatically enrolling employees, of these plans use a target-date or other balanced
75% use all three features of an autopilot design. fund as the default fund, with 9 in 10 choosing a
These plan sponsors automatically enroll employees, target-date fund as the default.
automatically increase the deferral rate annually, and
invest participants’ assets in a balanced fund. Another We previously analyzed the adequacy of total
24% of plan sponsors automatically enroll employees contribution rates in automatic enrollment plans.2
and invest participants’ assets in a balanced fund, In our sample, 4 in 10 plan sponsors had implemented
but do not automatically increase participant designs with inadequate total contribution rates.
deferral rates. These plans had designs in which, after five years,
total plan contributions—including employee-elective
Fifty-eight percent of these plans automatically enroll deferrals and all employer contributions—were less
participants at a 3% contribution rate (Figure 16). than 9%. A related concern is that most of these
Three-quarters of the plans automatically increase plans apply automatic enrollment only to new hires
the contribution rate annually. Ninety-nine percent and leave existing eligible nonparticipants and low
savers untouched.
Figure 16. Automatic enrollment design trends
Vanguard defined contribution plans with automatic enrollment
Default automatic enrollment rate 2005 2006 2007 2008 2009 2010
1 percent 4% 3% 3% 2% 2% 2%
2 percent 23 20 17 13 14 13
3 percent 46 52 56 60 57 58
4 percent 12 10 10 10 10 10
5 percent 10 8 7 7 7 6
6 percent or more 5 7 7 8 10 11
Default automatic increase rate
1 percent 31% 57% 66% 75% 74% 74%
2 percent 0 2 2 2 1 1
Voluntary election 44 27 23 16 17 20
Service feature not offered 25 14 9 7 8 5
Default fund
Target-date fund 42% 63% 81% 87% 90% 92%
Other balanced fund 33 26 15 11 9 7
Subtotal 75% 89% 96% 98% 99% 99%
Money market or stable value fund 25% 11% 4% 2% 1% 1%
Source: Vanguard, 2011.
2
Utkus, Stephen P. and Jean A. Young, 2007, Measuring the effectiveness of automatic enrollment, Vanguard Center for Retirement Research,
institutional.vanguard.com.
20 Accumulating plan assets

23. Participation rates savings program. This broader measure of plan
A plan’s participation rate—the percentage of eligible participation has begun a modest rise in recent years.
employees who choose to make voluntary This increase likely reflects the adoption of automatic
contributions—remains the broadest metric for enrollment by larger plan sponsors, predominantly
gauging 401(k) plan performance. The most common for new hires.
measure of participation rates is calculated by taking
the average of participation rates among a group of These two measures provide different views of
plans. We refer to this as the plan-weighted employee participation in their retirement savings
participation rate. In 2010, Vanguard’s plan-weighted plans. The first measure indicates that, in the average
participation rate was 74% and has remained basically plan, about one-quarter of eligible employees fail to
unchanged since 2001 (Figure 17). contribute. The second measure, however, shows that
within the entire employee universe, about 3 in 10
A second measure of participation rates considers employees fail to take advantage of their employer’s
all employees in Vanguard-administered plans as if plan. The first measure is a useful benchmark for
they were in a single plan. We refer to this as the an individual plan sponsor because it is calculated
participant-weighted participation rate. Across the at the plan level; the second is a valuable measure
universe of Vanguard participants, 68% of eligible of the progress of 401(k) plans as a whole because
employees are enrolled in their employer’s voluntary it looks at all eligible employees across all plans.
Figure 17. Participation rates
Vanguard defined contribution plans permitting employee-elective deferrals
100%
76% 75% 75% 76% 77% 76%
74% 74% 74% 73% 73% 74%
66% 66% 68% 68%
65% 65% 65% 65%
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Plan-weighted Participant-weighted
Note: The 2010 participation rates are drawn from a subset of plans that had completed nondiscrimination testing by March 2011 and represents approximately half
of the clients for whom we perform testing. When testing has been completed for all plans, the analysis is performed again and the data is restated for prior years.
Plans that complete testing by March generally have lower participation rates and include plans with concerns related to passing nondiscrimination testing. The
previously reported plan- and participant-weighted participation rates for 2009 were 75% and 69%.
Source: Vanguard, 2011.
Accumulating plan assets 21

24. Distribution of participation rates DB plan, or employer profit-sharing or ESOP
Participation rates vary considerably across plans contributions to a DC plan. Other possible reasons
(Figure 18). In 2010, half of plans had a participation include the inherent difficulty of communicating across
rate of 80% or higher, while 1 in 10 had a many locations in a large firm and the fact that large
participation rate of less than 50%. firms often outsource the enrollment process to their
provider, while small firms may tend to rely on an
Participation rates also vary by plan size, with larger in-house human resources representative. Larger plans
plans having lower participation rates than other plans have been most likely to add automatic enrollment;
(Figure 19). One reason for lower participation rates at however, it has typically been added only for new
large companies may be the presence of another employees, leaving existing nonparticipants unaffected.
retirement plan benefit, such as an employer-funded
Figure 18. Distribution of participation rates
Vanguard defined contribution plans permitting employee-elective deferrals
Percentage of plans
Plan participation rate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
90%–100% 20% 15% 15% 15% 16% 17% 20% 24% 23% 18%
80%–89% 27 29 27 28 26 28 31 30 29 32
70%–79% 24 26 25 24 25 23 20 20 20 18
60%–69% 13 15 15 15 15 16 14 11 11 12
50%–59% 8 7 9 9 9 8 8 8 7 8
50% 8 8 9 9 9 8 7 7 10 12
Average plan participation rate 76 75 74 74 74 75 76 77 76 74
Source: Vanguard, 2011.
Figure 19. Participation rates by plan size
Vanguard defined contribution plans permitting employee-elective deferrals
Number of participants
Plan-weighted participation rate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1,000 77% 76% 75% 75% 75% 75% 76% 77% 75% 74%
1,000–4,999 72 71 70 71 71 73 75 78 79 76
5,000+ 71 71 72 70 69 71 73 78 76 69
All plans unweighted 76 75 74 74 74 75 76 77 76 74
Participant-weighted participation rate
1,000 70% 70% 69% 69% 68% 68% 72% 74% 71% 70%
1,000–4,999 65 66 64 66 64 66 67 71 72 66
5,000+ 62 64 64 63 64 65 67 74 73 68
All plans weighted 65 66 65 65 65 66 68 73 73 68
Source: Vanguard, 2011.
22 Accumulating plan assets

25. Participation rates by employee demographics Participation rates were lowest for employees
Participation rates also vary considerably by employee younger than 25. Only 41% of employees younger
demographics (Figure 20). Income is one of the primary than 25 made voluntary deferrals to their employer’s
determinants of plan participation rates. Only half of plan in 2010, while about 7 in 10 eligible employees
eligible employees with incomes of less than $30,000 between ages 35 and 64 saved for retirement in their
contributed to their employer’s DC plan in 2010, while employer’s plan. Tenure had a significant influence
88% of employees with incomes of more than on plan participation. In 2010, only 49% of eligible
$100,000 elected to participate. Yet even among the employees with less than two years on the job
highest-paid employees, 12% of eligible workers still participated in their employer’s plan, while 78%
failed to take advantage of their employer’s DC plan. of employees with ten years or more of tenure
participated.
Figure 20. Participation rates by participant demographics
Vanguard defined contribution plans permitting employee-elective deferrals
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
All 65% 66% 65% 65% 65% 66% 68% 73% 73% 68%
Income
$30,000 42% 44% 41% 41% 43% 43% 45% 56% 55% 50%
$30,000–$49,999 67 66 66 63 64 63 66 71 70 65
$50,000–$74,999 80 79 77 75 75 74 76 78 76 71
$75,000–$99,999 87 87 85 83 83 84 84 85 84 80
$100,000+ 90 91 90 90 90 91 91 91 90 88
Age
25 31% 30% 27% 28% 30% 33% 38% 49% 49% 41%
25–34 60 60 58 58 57 58 61 68 68 61
35–44 73 72 70 69 68 69 70 75 74 69
45–54 75 75 73 72 71 71 74 78 77 73
55–64 75 74 74 71 71 72 74 77 76 73
65+ 60 58 62 58 58 57 62 67 68 67
Gender
Male 66% 67% 65% 64% 65% 66% 69% 75% 73% 67%
Female 64 64 64 62 64 64 67 73 72 68
Job tenure (years)
0–1 46% 39% 37% 41% 42% 45% 49% 58% 55% 49%
2–3 65 65 59 56 56 58 61 69 69 58
4–6 75 74 70 68 66 67 68 73 72 67
7–9 78 78 77 75 73 73 74 79 77 72
10+ 79 78 79 77 77 79 80 82 81 78
Source: Vanguard, 2011.
Accumulating plan assets 23

26. Figure 21. Participation by income and gender, 2010 Men and women appear to participate at about
the same level. But these overall averages fail to
Vanguard defined contribution plans permitting account for the income differences between men
employee-elective deferrals and women. At most income levels, women are
significantly more likely than men to join their
Female Male All
employer’s plan (Figure 21). For example, in 2010,
$30,000 49% 51% 50%
78% of women earning $50,000 to $74,999
$30,000– $49,999 69 61 65
participated in their employer’s plan—compared
$50,000– $74,999 78 68 71
with 68% of men in the same income group.
$75,000– $99,999 84 78 72
$100,000+ 86 88 88 Participation rates also vary by industry group (Figure 22).
Source: Vanguard, 2011. Employees in the agriculture, mining, and construction
industry group had the highest participation rate, with
9 in 10 workers participating in their employer’s plan,
Figure 22. Participation rates by industry sector, 2010 while employees in the wholesale and retail trade
industry had the lowest participation rate, at 46%.
Vanguard defined contribution plans permitting
employee-elective deferrals
Impact of automatic enrollment on plan participation
Plan- Participant- Reflecting increased adoption of automatic enrollment
weighted weighted designs, there was dramatic improvement in
Overall 74% 68% participation rates between 2005 and 2010 among
demographic groups that traditionally have lower
Industry group
voluntary participation rates. Employees in plans with
Agriculture, mining, and construction 77% 89%
an automatic enrollment feature at the end of 2010
Finance, insurance, and real estate 81 79 have an overall participation rate of 82% compared
Manufacturing 73 75 with a participation rate of only 57% for employees
Transportation, utilities, in plans with voluntary enrollment (Figure 23). This is
and communications 74 70 especially remarkable in light of the fact that most
Business, professional, and nonprofit 76 63 plan sponsors have implemented automatic
Media, entertainment, and leisure 67 63 enrollment prospectively for new hires only.
Education and health 78 59
Wholesale and retail trade 68 46
Source: Vanguard, 2011.
24 Accumulating plan assets

27. Figure 23. Participation rates by plan design, 2010 Plans with automatic enrollment have higher
participation rates across all demographic variables.
Vanguard defined contribution plans permitting For individuals earning less than $30,000, the
employee-elective deferrals participation rate is about triple that of plans
with voluntary enrollment.
Voluntary Automatic
enrollment enrollment All
All 57% 82% 68% Aggregate plan participation rates
As noted previously, some plan sponsors make other
Income nonmatching contributions for all eligible employees,
$30,000 26% 76% 50% whether or not these employees actually defer any
$30,000– $49,999 52 79 65 part of their pay to the plan. When these contributions
$50,000– $74,999 60 86 71 are factored in, both the plan- and participant-weighted
$75,000– $99,999 73 89 80 participation rates improve. The plan-weighted
$100,000+ 85 93 88 participation rate rises to 80% and the participant-
weighted rate to 71% (Figure 24). In other words,
Age across all Vanguard plans, nearly three-quarters
25 18% 72% 41% of employees either make their own contributions,
25–34 47 81 61 receive an employer contribution, or both.
35–44 58 82 69
45–54 64 84 73
Figure 24. Aggregate participation rates
55–64 66 84 73
65+ 60 80 67 Vanguard defined contribution plans permitting
employee-elective deferrals
Gender
Male 54% 83% 67% 100%
Female 58 82 68 83% 84%
81% 82% 83%
78% 79% 80%
72% 74%
Job tenure (years) 70% 71%
0–1 29% 75% 49%
2–3 44 81 58
4–6 57 82 67
7–9 66 82 72
10+ 71 85 78
Source: Vanguard, 2011.
0
2005 2006 2007 2008 2009 2010
Plan-weighted Participant-weighted
Source: Vanguard, 2011.
Accumulating plan assets 25