Welcome, everyone, to the 84th edition of Bogleheads on Investing. Today, our special guest is Jeff Clark. Jeff is a 27-year veteran of Vanguard's Workplace Solutions, which runs over 1,400 retirement plans for almost 5 million participants. He's also the author of Vanguard's new study, How America Saves, 2025. Hi, everyone.

My name is Rick Ferry, and I am the host of Bogleheads on Investing. This episode, as with all episodes, is brought to you by the John C. Bogle Center for Financial Literacy, a nonprofit organization that is building a world of well-informed, capable, and empowered investors. Visit the Bogle Center at boglecenter.net, where you will find a treasure trove of information, including transcripts of these podcasts.

Before we begin, I have one special announcement. Tickets for the 2025 Bogleheads Conference are now on sale at boglecenter.net. This year's conference will begin at noontime on Friday, October 17th, and run through noontime on Sunday, October 19th. It will be at the Hyatt Regency San Antonio Riverwalk Hotel, a beautiful location directly across from the Alamo.

You'll find a list of speakers at the boglecenter.net website, and a full agenda will be up soon. I hope to see many of you there. In this episode, my guest is Jeff Clark. He's a 27-year veteran of Vanguard's Workplace Solutions. This is the division within Vanguard that consults to about 1,400 employers and administers 401k accounts for almost 5 million employees.

Each year, Vanguard publishes a detailed report on the 401k marketplace and digs into their own client accounts to answer a lot of questions about what works and what doesn't. Jeff is the author of this report and brings to us a lot of great insight. So with no further ado, let me introduce Jeff Clark.

Welcome to Bogleheads on Investing, Jeff. Thanks for having me, Rick. It's a real pleasure to have you on because this study, How America Saves, the 2025 edition, is really insightful into not just how retirement plans are evolving, but the study also shows how the evolution has improved the plans for the employees and the employers, greater participation rates, better investment options, better returns.

We're going to get into all of that today. But before we do, I'd like you to tell me a little bit about yourself, your career, and how you ended up as the author of How America Saves. Absolutely. Yeah. So I am a 27-year veteran at Vanguard. I have been on our workplace solutions division my entire career.

For many of the last, I would say, close to 20 years, I've been involved with How America Saves. For many years, served as one of the lead data analysts, and more recently, over the last few years, have taken over author of How America Saves. So my role is really pulling out all of the most pertinent information of what we see within 401k plans, getting everything into How America Saves.

We also have various other research and thought leadership initiatives. We have looked at a lot of this through different generations, through gender, to really kind of highlight where some of the successes have been with retirement plans, as well as where some of the opportunities lie ahead. Vanguard has a deep understanding of this.

You've got almost 5 million participants in Vanguard plans. Yes. So when we look at How America Saves, I mean, I'd say one of the things that really kind of makes this a little bit more, I would say, distinguished in the industry is that we are looking at the actual behavior of participants.

This is all through traditional data analysis, looking at the behaviors of 5 million participants. Those are 5 million participants across 1,400 defined contribution plans. And then also looking at the attributable plan designs of those as well. And looking at the way that plan designs really have started to impact the way that workers are saving for retirement.

And I would say, you know, at the end of the day, this How America Saves publication, it really embodies Vanguard's mission. I mean, this report at the end of the day is really providing insights to the retirement industry, whether that's, you know, plan sponsors and consultants, you know, even the end participants to help continue that progress that's been made, you know, in the end drive better retirement outcomes and give all investors, all participants the best chance for investment success.

I will make a comment about the number of plans, 1,400. Vanguard used to administer many more. My own company, I had a solo 401k with Vanguard, but a couple of years ago was pushed out to another firm, to put it nicely. Did the elimination of solo 401ks at Vanguard change this study?

So in addition to the 1,400 plans that we have here at Vanguard, we also work with Ascensus. They provide record keeping for a lot of the small business retirement plans. So we have over 20,000 small business plans that are not included in the How America Saves publication, but we are in the process of looking at that data separately.

And that will be a report out later here in 2025 that's really going to zero in on how are those smaller business 401k plans performing, especially as you compare them to larger plans? Interesting. I'm looking forward to reading that. Let's go ahead and get into this study. I'm going to go through the report from basically the beginning to the end.

I am going to leave out the loan portion of it at the end, but anybody who wants to download this, it's free. I just search for How America Saves 2025. The PDF will come up and all this information is available to you. So we're going to go through the report and the first thing that we come across is vesting because not all 401ks, when money goes in, you immediately vests.

In fact, in the plans that you looked at, only 50% have immediate vesting. And is that the employer's side only, not the employee's side? Correct. So with vesting, these would be looking at both the employer matching contributions, as well as some plans may offer a non-matching. So that could be a profit sharing or a non-elective contribution that essentially, you know, everyone would get and it wouldn't be predicated on deferring from your own paycheck.

And, you know, I would say overall about half of plans essentially have immediate vesting for their employer matching contributions. And I would say overall, we've seen that to be fairly consistent over the last several years. But one area that I think has been increasing might be eligibility. We are seeing more plans start to allow their workers to start contributing on day one.

So 76% of retirement plans now allow for immediate eligibility. There are some 401k plans that the employer doesn't put anything in. They don't do any matching. They don't do any other, let's say, profit sharing contribution or just percentage of salary contribution. But of the ones that do have an employer match where employee puts in money and then the employer matches it, it seems that the range for that is between three and five percent.

Generally, most of the plans are doing matching between three and five percent. 50% of plans essentially offer just an employer match, but another 36% of plans we have found also offer a match as well as a non-matching contribution. So then in addition, about 10% of plans just offer that non-match and only about 4% of plans within our population do not offer any type of employer contribution.

But you are correct. You know, the most common overall matching values are in that three to five percent range. The average matching value right now is 4.6%. So that's essentially just taking all the different match formulas. You know, if you have a 50 on six, that's a three percent value.

A hundred on six, that's a six percent. We take the average of those, you know, fully maximized employer match values. It's now 4.6 and that's up from about 4.2 10 years ago. So we're also seeing some improvements in plan design with sponsors starting to increase their employer match, you know, especially as a way to, you know, retain and attract employees.

Of all of the plan participants that do participate in the plan and not all of them participate as an employee, and we'll get into that in a minute, but of the ones that do, how many just do enough to get the match and how many of them do more than that?

Yes. And this actually starts to get impacted by auto-enrollment defaults. Now, overall, I would say that about 70% of participating employees contribute enough to get the match. One area that we are starting to see, though, is you have an auto-enrollment and let's say you're defaulting in at three percent, but your match is 50 on six, you could end up with a lot of participants who are not maximizing the match just because we know inertia sets in, they get defaulted in at three percent, and they might not be looking to get up to those higher employee contribution levels.

But I would say broadly around 70% of participants essentially do at least maximize the match, if not save more. How many plans are you seeing that are doing that? In other words, they're doing two levels of match. They're doing the first three percent of salary at 100%, and then the next three percent at 50%.

Is that a trend? So the most common match is still 50 on six. Now, that has started to not be as prominent as it once was, but it is still the most common match formula. The second most is the type of formula that you're describing right now. So that would be 100 on the first three, 50 on the next two.

So you'd have to contribute five, and in effect, you'd get a four percent employer match. But then the next three most common after that are 100 on six, 100 on five, and 100 on four. So I would say generally, I mean, there are other, I would say, you know, multi-tier matching formulas out there.

I would say probably about 20 to 25% of plans would have some type of a multi-tier, where the other ones are going to have just a straight X percent up to X percent of pay. Yeah, thanks. The reason I'm asking all these questions is because we have a lot of people who listen to this program who are in a 401k or even are trustees of a 401k, and they are looking for information of, you know, what's new?

You know, what can I do better? You know, how can I improve my plan? Or how can I suggest my employer improve the plans? That's why I'm asking you a lot of these questions about the trends. Yeah, the number one trend from a plan design perspective that we are most encouraged by is auto-enrollment.

Every year, we're seeing more and more plans adopt auto-enrollment. And as of last year, 61% of all plans have an auto-enrollment design. And then you look at those plans that are a little larger, that have at least 1,000 participants within them, that number gets close to 80%. And I would say what's most encouraging is that every year, we're seeing those numbers increase from the year prior.

So auto-enrollment certainly is not a new feature for 401k plans, but over the last 20 years, we've seen continual growth. And certainly with Secure 2.0 mandating that new plans in the future are going to have to have auto-enrollment, you know, we anticipate these numbers to continue to rise. Which gives us that second part of the report, which is participation rates, which begins with the discussion about auto-enrollment.

And as you said, overall, 61% of the plans have adopted auto-enrollment. But in digging into the data a little bit, it seems as though the companies that are doing auto-enrollment are the ones who are larger. because as I look at the data, it seems like the companies that have less than 500 employees, because you have a spectrum here, less than 500, 500 to 999, 1,000 to 499, and then over 5,000.

It's the companies that are larger, which tend to offer auto-enrollment versus the ones that are smaller, a lot less do. In fact, it's about half. So 80% of large companies have auto-enrollment, but only about 40% of small companies do. Why do you suppose that is? I think as you think about larger companies, they are hiring more employees.

I think auto-enrollment really helps just to kind of, hey, you don't have to do anything. You can essentially, you'll be saving from day one. Smaller companies, there may be maybe a little bit more ability to do a little more hand-holding sort of on that onboarding process to be able to walk through a retirement plan, explain how it works.

They may not feel, well, the number of employees that we hire in a certain year, maybe we don't feel like we necessarily would need it. But, you know, I would say when you look at the data and you look at the participation rate differences of those plans without enrollment, it's quite stark.

So 61% of all the plans offer auto-enrollment. And I'm going to ask a two-part question here. So what is the participation rate when the plan offers auto-enrollment? And what is the participation rate for voluntary enrollment in plans that do not have auto-enrollment? Yeah. So when you look at our plans that offer an auto-enrollment design, 94% of employees participate in that plan.

Wow. When you look at our plans that have a voluntary enrollment, where essentially employees would need to take the proactive step to sign up for their 401k plan, that number is around 66%. And so there's a very large difference there. And I think what's interesting is, hey, if we go back 20 years to, you know, right before the Pension Protection Act in 2006, sort of when, you know, auto-enrollment came onto the scene, the overall participation rates at Vanguard were around 65%, 66%.

About one out of every three workers were not saving for retirement. So as you think about the improvements that we've made now, and now the average plan participation rate here at Vanguard is 85%. That is an all-time high. But if you look at the voluntary enrollment plans, their participation rates are still pretty much kind of right in line with where they used to be 20 years ago.

Now, where auto-enrollment really helps the most, it's with new hires. If we look at longer tenured workers in voluntary enrollment designs, their participation rates are usually pretty strong. In fact, they're almost, you know, pretty close to where those longer tenured participants in auto-enrollment would be as well. But, you know, as we know, it's all about time in the markets and getting contributions in.

You know, that first year of employment can make a huge difference when you think about retirement readiness. So with auto-enrollment, we know, hey, workers in that first year, over 9 out of 10 are going to be saving for retirement. It's really for those voluntary enrollment plans, you'll start to see participation rates start to increase around year 4, 5, 6.

So auto-enrollment just does an incredible job, especially with those less tenured employees. Well, that's really great news and badly needed with the demise of defined benefit plan and the rise of 401k plans as the primary source of saving in the workplace for retirement. Okay. The next area you have to explain to us, a default automatic increase and the default automatic increase rate.

And then there's also an increase cap. First of all, explain what a default automatic increase is and then what a default automatic increase rate is and then what a cap is. Absolutely. So when a plan has an auto-enrollment design, they initially will set a default automatic enrollment rate, which is essentially the rate that you'll go in at.

Initially, when a lot of auto-enrollment designs were created, 3% was certainly the most common. And what we have seen is a shift towards higher default rates. So now, over 60% of plans now default in at a rate of at least 4% or more. In fact, 30% of plans default in at 6% or more.

And our research has shown that, you know, if you default someone in at a 3, 4, 5, or 6% default rate, even looking at it by income, you're going to have very similar opt-out rates. So it's, you know, a lot of plan sponsors are thinking about ways to set that default at at least at that maximum match rate.

So if you have a match that's 50 on 6, hey, let's default in at 6. And that way, employees can start realizing that full employer match from day one. Now, the default automatic increase rate, about 70% of plans that offer auto-enrollment also automatically enroll workers into an annual escalation feature.

So typically, that's a 1% increase every year up to a set cap by a plan sponsor. And so this way, you're going to, let's say, you're going to get defaulted in at 6. And the next year, you're automatically going to get bumped up to 7%. Now, certainly, employees can, you know, override this.

They can opt out of that. We'll see some employees go in and just say, hey, from day one, they want to just save 10%. They want to turn the auto increase off. We've seen that for when plans offer auto-enrollment and the auto increase, their workers save about 20% to 30% more within the first three years of saving compared to just those plans that have an auto-enrollment design.

Now, the default auto-increase cap is, let's say, you're a plan sponsor and you have that annual escalation feature. You can have a default cap, which essentially would say, all right, we're going to default you up to, let's say, when you get to 10%, we're going to stop you, or we're going to get 12% or 15%.

So there's going to be essentially a cap. Now, you know, most plan sponsors would allow participants to set a higher cap if they would like, or a lower cap, but usually plan sponsors will build in some type of a cap. And at the end of the day, you know, Vanguard would recommend workers save, in total, about 12% to 15%.

A lot of sponsors are thinking about what's the quickest way to get participants to that 12% to 15%. And that would include the employer match. Absolutely. All right, let's get into the demographics. I mean, who is actually taking advantage of this? And here we have some interesting data. And you break it down by income, age, gender, job tenure, how many years they've been at each company.

Let's talk about income first. Very clearly, people with higher incomes have higher participation rates. And the lowest income have actually declined in the last few years. So let's look at that. So, yes, when we start to look at it by income, clearly those that are earning, I would say, the highest amount have very strong participation rates.

And they have remained, you know, I would say, very strong throughout. Now, you will start to see the last couple of years some of the lower income participation rates start to decrease. I would really say that's just more of a change in business for us with, you know, having a couple of maybe a couple of larger plans that had a lot of lower income workers that are no longer in the data right now.

Oh, I see. So it could be just an issue with the data, not really the fact that, say, nationwide, people who have lower incomes are participating at a lower rate. No, I mean, especially as we look at, you know, the aggregate numbers, I mean, they're still very, very strong overall.

And I would also say, you know, especially within How America Saves, some of those lower income segments, you know, at the end of the day, there's not a lot of employees in there. The median income for the employees and participants in our data samples in like the $80,000 to $90,000 range.

Okay, very good. Okay, the next thing is age. And here you would expect, well, I mean, again, auto enrollment is probably going to help this. But again, we have lower participation rates for those who are less than 25 years old. I mean, just coming into the workforce, which I would think should be higher because of auto enrollment.

You could have plans that are of a voluntary enrollment that just have a lot more younger workers. And that's really kind of what leads to those overall lower numbers. I mean, if you look at it, when you break it down by voluntary and auto enrollment, for those workers under 25, if their plan offers an auto enrollment design, 90%.

Of those younger workers participate compared to just 25% in a voluntary enrollment design. That is a huge difference. Absolutely. Especially when you think about just the power of compounding and, you know, what those first few years in your early 20s, what those dollars could look like in retirement. That makes a huge difference.

Huge difference. And that 25% voluntary is significantly lower than, you know, pretty much any of the other age cohorts. Most of the other age cohorts are, you know, in the 60s and 70s percent, as you would expect overall. But yeah, but the auto enrollment does an incredible job, as I mentioned before, with lower tenured and younger participants.

And so the next category is gender, men, women, or you have male, female. It's about the same. And it's been about the same every year that you looked at this. Men are not participating more than women. Women are not participating more than men. It seems pretty equal. Overall, the numbers are very equal.

But when you start to look at it by income, one of the things that we highlight in How America Saves is that at most income groups, women do have higher participation rates than men. Now, that's not a significant difference. But, for example, if you look at everyone that earns between $75,000 and $100,000, 91% of women participate compared to 86% of men.

In fact, when you look at the highest pay, those earning over $150,000, 96% of women participate compared to 94% of men. And so what we see here really, though, is that, unfortunately, these numbers get all averaged out just because of the income gap. There just happen to be more men that are in those higher income brackets.

So when you start to look at men by income, while women are participating higher than men at most income segments, because there are more men in the higher income segments that just usually and typically have overall higher participation rates, the averages turn out to be about the same. The last category is tenure, how many years you've been on the job.

And here we see people who have been on the job for one year or less have a lower participation rate. And as they increase their tenure to two to three years, four to five years, it increases. And I'm going to guess maybe, I'm speculating here, maybe the participation rate at the one year or less level is lower because some of these plans do not have immediate vesting of the employer's side.

Does that have any validity to it? I mean, the main cause really is auto enrollment. I mean, if you look at those workers that have less than two years of tenure in an auto enrollment design, 90% are participating. Those all workers with less than two years of tenure in a voluntary, only 40% are participating.

So there is a 50 percentage point gap. I mean, those in an auto enrollment are twice as, more than twice as likely to be participating. And that's really kind of what's at the end of the day driving that overall tenure number to be a little lower. Do you see anything in the data that says that not doing immediate vesting of the employer match or the employer contribution is causing people to not or to decline auto enroll in the first year or so?

We have not found any correlation between vesting schedules and participation. Okay, perfect. Figure 30 is startling. It shows the huge difference on an income level, on an age level, on a job tenure level, breaks it down between participants who will sign up under auto enroll versus participants who would voluntarily sign up.

And it's startling, the difference. Yeah, we think about, you know, essentially modern plan design, the development of just more plans offering auto enrollment has been absolutely, you know, I would say the biggest driver in helping workers prepare for retirement. You know, even just in speaking with, you know, a lot of HR professionals, you know, a lot of them will say, you know, hey, you know, our employees, they greatly appreciated this because it might not have been something they were even, you know, maybe even thinking about.

You know, they might be two or three years into their career and then all of a sudden, like, wow, like this has really kind of grown into, you know, a nice, you know, starting retirement savings account. And, you know, as we think about more plans offering it, plans are continuing to improve the design of their auto enrollment.

They're also more likely to offer immediate eligibility. They're increasing employer contributions. All of these really are great steps to help workers prepare for retirement. Because at the end of the day, as you mentioned at the beginning, I mean, 401k plans really are the prominent vehicle that workers are using to save for retirement right now.

And so the more that, you know, employees can make it easy and have a really strong design, the better off workers are going to be. You know, and it's also important to think about just the workforce in general today. I mean, you know, one of the advantages of defined contribution plans are they are portable.

And, you know, with a lot of workers changing jobs more frequently, you know, the typical worker is probably going to have maybe nine or ten employers. They change jobs about every four years. Having auto enrollment with immediate eligibility and strong defaults helps to maintain those strong savings habits through job changes, you know, versus, you know, if your plan has a voluntary enrollment design, like as the data shows, over half of workers in their first two years never take the steps to sign up for that 401k plan.

But having an auto enrollment design that has that strong default at the employer match rate, you know, essentially can kind of help. And with that annual escalation feature, again, it's, you know, how quickly can you get workers saving that 12 to 15 percent? And the more employers that start to, you know, offer this, the better off overall retirement readiness will be for workers.

So I'm going to pivot here for a second. What do you think about these TikTok people who are telling their listeners, 401k plans are a sham. Don't put your money in them. Put your money into this insurance product that I offer. I would say, I mean, if you think about 401k plans, the tax advantage standpoint of them, as well as just the ability to, for most plans, get those additional employer contributions to be able to have a, you know, a fun lineup that is well diversified.

And there is nothing easier than contributing to a 401k plan. It comes right out of your paycheck. I mean, it is an incredibly easy and it is, is definitely, it's standing the test of time. That's a very professional answer. Now I want you to really tell me what you think about these TikTok people.

I will have no comment. It's just absolutely criminal that these people are out there saying that. I can say that. Okay. You're not going to say it, but I'm going to say, I mean, it's criminal that these people are up there on TikTok telling young people, don't participate in your 401k.

Instead, buy a expensive high commission insurance product through me. You're going to be better off. So I know you can't say it, but I can say it. Well, I've seen a lot of things, a lot of financial advice that is out there on social media. And I would, you know, just probably say buy or be aware for a while.

Fair enough. All right. Let's get into the Roth. So a lot of 401k plans are offering a Roth option for their employees to put money into. How many plans are offering that as a percentage and what's the participation rate? Sure. So the majority of plans are offering Roth. So as of last year, 86% of all retirement plans are offering Roth contributions.

Thinking about some of the provisions here with Secure 2.0, you know, starting in 2026, higher paid employees, if they want to contribute to catch-ups, those contributions are going to have to be made in Roth. So I would anticipate that that 86% of plans is going to get pretty close to 100% by next year.

Now, what we're also seeing is just the overall usage continue to increase as well. So last year, an all-time high, 18% of all participants who had access to a Roth account were contributing to Roth. And, you know, as you start to, you know, kind of look at it by, you know, the demographics that we've been referencing here, it typically is the higher paid participants as well as even some of the younger participants have some stronger Roth adoption rates there as well.

And soon you will be able to, as an employee, you'll be able to opt to have the employer contribution also go into your Roth. When does that take effect? So right now we are actually seeing a lot of plan sponsors look at just simply offering that Roth in-plan conversion feature.

So in this case, you know, you can at any point take any of those dollars, whether they are your own employee contributions or their employer contributions, and you can convert them to Roth. And so as of last year, 36% of plans offered a Roth in-plan conversion. And we've really kind of seen that start, a lot of conversations increase more recently.

Just, I think just because of the Secure 2.0 provisions, I think, you know, Roth has started to become a popular topic with a lot of employers. A lot of sponsors are really just kind of thinking about ways just to kind of set their employees up for success with regards to Roth and just allowing these Roth in-plan conversions in that way.

You know, at any point in any time, they can just say, hey, you know what, I want to, you know, maybe even work with a financial advisor to figure out when that most opportune time might be. As they, you know, get closer to retirement, they can start to just convert those dollars right over.

So instead of asking the employees, do you want your employer match or employer contribution to go into a traditional account pre-tax or the Roth, all they're saying to them is, well, look, we're going to put it in your traditional side, but you can convert it anytime you want. However, when you do convert it, of course, it's a taxable event.

Exactly. And you're going to be paying income tax on that. Yes. Interesting. So I see how they're addressing this. What about after-tax contributions to 401k? You maxed out your contribution as an employee, and you want to make after-tax contributions up to the limit of the total amount that could be put into the 401k.

What percentage of plans offer that, and what's the participation rate? Sure. So 24% of plans offer traditional after-tax. So these are contributions that, like you said, after you reach that 402k limit, now your pre-tax and all Roth contributions fall under that 402k limit. But after you've reached that, you can contribute to after-tax accounts.

And when offered, about 10% of participants use them, and it's typically going to be your higher income workers that would be taking advantage of that. And then you also may have some plans that, hey, once you reach that 402k limit and you start contributing after-tax, they can do sort of an auto-convert to Roth on those contributions right when they come in.

Almost sort of like that automatic Roth in-plan conversion to kind of take advantage of those additional tax benefits of the money being in Roth. Using industry jargon, you could do an automatic mega-backdoor Roth. Correct, yes. And then that way, you're essentially kind of going up, with your employer contributions, going up to that 415k limit, which is certainly much significantly higher than the 402k limit.

Okay, very good. Let's talk about account values. And here, there's no surprise, obviously, the longer you work, the more you put money into your 401k, the greater your account values are. And I don't think there's anything really in the data that is surprising here. Yeah, and I would say as of last year, I mean, we did have all-time highs with average and median balances within How America Saves.

Now, certainly a lot of those account balances are driven by the market. I'd also say that, you know, even with auto-enrollment, we're having just that many more new accounts kind of get brought in. You know, as I review a lot of the data on How America Saves, account balance is one that I don't typically talk about as much just because, at the end of the day, we're just kind of looking at, for most workers, perhaps just a portion of their retirement assets.

I mean, this, for the most part, these are just the balances of where someone has with their current 401k plan. I mean, we know most participants may have prior 401ks, they have IRAs, their spouse has retirement assets. So, you know, I think what can start to become more impactful, though, is we've been talking a lot about plan design.

What we did this year is we looked at plans that offer auto-enrollment versus voluntary enrollment and account balances. You know, we see overall the median balance for someone that's in an auto-enrollment or a voluntary enrollment very similar. But then when we start to look at it by tenure, what we have found is that for those longer-tenured participants, and in this case we'll say everyone that has more than 10 years of job tenure, the median balance for those workers in an auto-enrollment plans is about 60% higher than those longer-tenured workers in a voluntary enrollment design.

And the reason is because those auto-enrollment participants have essentially been saving since day one, where those voluntary enrollment participants probably didn't start until year four, five, or six. And so as we start to think about, you know, just the impact that auto-enrollment can have on just overall balances and retirement readiness, I think it was – this is, you know, definitely a very strong point to highlight is that, you know, as you just think about those longer employees that have been there, you know, getting them in the plan on day one, they are going to essentially have balances that are about 60% higher than they would have otherwise.

All right. Now for the remainder of the time, we're going to talk about investing, how people are investing, and we're going to talk about the returns. I think kind of fascinating what's going on here. So first off is asset allocation, you know, basically how the money is diversified in different types of funds.

And there has been a increasing allocation quite largely to target date funds and decreasing allocation to just diversified equity funds and also a decreasing allocation to, looks like, company stock. Just describe these trends in general. Yeah, we think about the overall asset allocation. So 42% of all assets, you know, across the, you know, 1400 plans on our record-keeping platform, 42% of those assets are in target date funds.

And that is up from 26% 10 years ago. And, you know, a lot of that really is driven by just increasing contributions over time. So, you know, as we think about 64% of all new money last year, all contributions were going into target date funds. So essentially about two out of every $3 being contributed.

Now, certainly auto-enrollment has played a part in this. You know, as we look at auto-enrollment designs, you know, about 70% of participants that are in an auto-enrollment design are in a professionally managed allocation. Now, when I talk about professionally managed allocations, this is any participant who is a pure target date fund investor, meaning they have 100% of their assets in one target date fund or balanced fund.

Or they're in an in-plan managed account advice solution. So at the end of last year, 67% of all participants at Vanguard were in a professionally managed allocation. So two out of every three. We've made an incredible amount of progress in just helping workers not just get in saving at a strong level, but also defaulting them into an, you know, age-appropriate, well-diversified portfolio.

Now, I do want to highlight one thing on asset allocation that you have in here. It says the average participant-weighted asset allocation to equities was 78% in 2024. And in the report, you comment that, and I quote, In the past, higher-income participants tended to assume more equity market risk on average than lower-income participants.

However, with the rising adoption of target date funds and automatic enrollment, participants of all income segments now have similar equity risk. I think that's really important. Absolutely. I mean, if you look at participants who are in a professionally managed allocation, the lower-income participants are more likely to be in it.

So actually, on figure 78, you'll see lower-income workers, over three-quarters of them are in a professionally managed allocation. You know, when you go back 20 years ago before, you know, target dates became so popular, you know, most retirement plans defaulted workers in to a money market or a stable value fund.

And think about it as the time of voluntary enrollment, so workers needed to, you know, essentially sign up for their 401K plan. They needed to figure out how much they were going to save. And then after they arrived at that savings rate then, you know, they would typically be given, you know, a list of, you know, maybe 15 to 20 different mutual funds of varying asset classes and asked to, you know, kind of put together a, you know, well-diversified portfolio that was age-appropriate.

And I think there may have been a lot of participants that were like, you know what, I'm just going to go with this default. You know, it's a money market. It pays X number of interest. I understand this. I'm just going to do this. And so I think as what we have found, as more sponsors are just going with these targeted funds defaults, they have really become, you know, the main investment vehicle for retirement plan savers right now.

And the overall improvements, especially, I would say, for younger workers, has been astounding. You know, as we're kind of talking about this, I'll share my favorite figure in the entire book. It's figure 84. And in this figure here, I think it's very impactful to kind of show that, you know, back in 2005, the average equity allocation for someone in their 20s was around 50%, 60%.

And now in 2024, it's up to about 90%. And, you know, the average equity allocation line pretty much looks like your typical target day glide path. Again, this is all participants. You go back to, you know, 2005, and it wasn't as though everyone was at that 50%, 60%. That's just the average.

You had about a quarter of participants that had no equity, and you had about a quarter of those in their 20s that had high equity, and they essentially were kind of meeting in the middle at that average. But as you can see now, just with the introduction of target date funds in plan managed account advice, it has drastically improved the age-appropriate equity allocations of participants.

I will say that in looking at the data, there seems to be a line in the sand somewhere around age 50, where if you're under age 50, you have a much more higher probability of having all of your 401K in a target date fund, and if you're over the age of 50, there's a lower probability.

We've talked about that two-thirds of participants that are professionally managed allocation. You know, so, you know, a lot may ask, hey, what about the other third? You know, how are they kind of constructing their portfolios? And really what we have found is a lot of it is kind of dependent upon age.

So if we look at younger workers, in this case, let's just say less than 35, younger than age 35, 82% of them are in a professionally managed allocation. For the 18% that are not, the vast majority of them have about 80% to 100% in equity. So they're essentially kind of, you know, within that ballpark.

Only 3% have, I would say, lower than 80% in equity. When we look at those mid-career participants, again, almost 70% of them are in a professionally managed allocation, but for those that aren't, the vast majority of them, I would say, are in at least that 60% to 100% range of having, I would say, an age-appropriate allocation.

But when we look at older participants, what we have found in this case, we're just going to say age 55 and older, only about half of them are in a professionally managed allocation. But when you start to look at how the other half are investing, their equity exposure is actually fairly dispersed.

We actually do highlight this separately in How America Saves. And, you know, what we show is that, you know, you essentially have participants that are older that have zero equity, and you have older participants that have 100% equity. And it's fairly dispersed across the full equity exposure spectrum. I'd also note that, you know, those sort of, you know, quote-unquote do-it-yourself investors, they tend to have the highest average and medium balances, you know.

So you start to think, like, hey, for a lot of those older participants, they were most likely hired before target dates. They've been kind of DIYing it themselves for their entire career. So you think about the typical participant that might be using a target date fund or in an advice solution, they're going to probably be more in that 40% to 70% equity range if they're, you know, those older participants.

I will also say that I am an advisor by trade that once people get assets outside of their retirement plan, let's say they have personal savings, that for tax purposes, you might do an allocation that might put more of the fixed income into the 401k or maybe international stocks which have high dividends into the 401k versus into a taxable account for the purpose of reducing taxable income that comes in.

So, I mean, there's lots of different reasons later on as you get older. To have something that is a different allocation than what a target date fund might have you in. Absolutely, yeah. No, there certainly could be very, you know, thoughtful, meaningful reasons on why some of these participants may be at those extremes.

But, you know, when you start to see dispersed and sort of, you know, you know, I would say this structured and dispersed, you just start to get concerned that there could be some portfolio construction errors for some participants in that segment. You talked about this managed portfolio because we're going to get into the returns here in a little bit of target date funds versus do-it-yourself versus these managed portfolios.

What do you mean by exactly by managed portfolios? I mean, okay, so we know what target date funds are. We know what balanced funds are. We know what do-it-yourself is with individuals who are just picking funds from the menu of funds that are available. Well, what do you mean by managed accounts?

I mean, who is managing these accounts, and are they getting paid for managing these accounts? That's a great question. And, yeah, so there are about half of plans at Vanguard also offer an in-plan advice service, and they can either choose to have that through Vanguard or through a third party.

And essentially, these participants are handing keys to the car over to an investment professional to take care of everything for them. And that way, they can essentially start to build in all of their personal risk tolerances. They can start to build in, you know, hey, what do my other assets look like?

And really kind of start to put together, you know, essentially an advised portfolio construction. And, you know, what we have found is that larger plans are definitely more likely to offer this. So 82% of our larger plans at Vanguard offer participants an in-plan managed account service. And I would say overall, when offered, you know, close to 10% of participants do take advantage of that.

Last part that I want to talk about today is returns. Fascinating, actually, when I dig into this, because that's my background. I spent years calculating returns on client portfolios, which is, by the way, why I became an index advocate way, way back 30 years ago. I'm looking at one of your figures that talks about the returns, time-weighted versus dollar-weighted.

And this is basically the question about, are these plan participants trading to try to do some market timing? And the way that you could always determine that is by looking at the time-weighted return, which has nothing to do with when money comes in and out of a fund, and the dollar-weighted return, which has to do with when people are putting money in funds and when they're taking them out.

And I want to highlight the five-year number. So on average, overall, this is all of your plans. The five-year number ending in 2024, the compounded annualized time-weighted return was 8% compounded. And the compounded dollar-weighted return, which would take into consideration market timing and so forth, was also 8%. People are remarkably disciplined about how they invest their 401k money in order for that number to come up.

That is a very great call-out. And absolutely. I mean, as we look at the data from last year, only 5% of participants made any type of an investment exchange. And in this case, I'm just referring to, you know, moving dollars from fund A to fund B. You know, when you go back, again, 20 years before target date funds, close to 20% of participants were trading in their 401k plans.

And what we have found is that there's a correlation between single target date fund usage and decreasing exchange activities. So as we have found more and more participants becoming pure target date fund investors, overall exchange activity has decreased. So, for example, if we look back last year in 2024, everyone who started the year as a pure target date fund investor, only 1% of them made an exchange in their account versus, I believe it was 11% of all of the sort of do-it-yourself investors.

And this is, I mean, it's really even held up through a lot of periods of severe market volatility. I mean, even as we look at some of the data from 2025, you know, we had the periods March and April when the markets fell significantly. We looked at the data here through sort of mid-year, only 3% of participants have made an exchange.

And that's pretty much in line to where we were at this point last year. So, yeah, I mean, as, you know, Jack Bogle would always, you know, kind of say one of the main principles of investing is stay the course. And we're definitely seeing that with the way the participants are handling their investment allocations and retirement plans.

I will go to another aspect of the data that you collected. And here we're looking at the average five-year dollar-weighted return. So how people actually did. Of those who are in single target date funds, those who were in managed accounts, you know, professionally managed, or advised, and those who were doing it themselves, and it's almost exactly the same, with the exception of a lot more dispersion of returns within the managed accounts and certainly within the individual do-it-yourself investors.

So the average is the same across those three categories. But the dispersion gets wider and wider as you go to a managed account. The dispersion of the returns are many more higher, many more lower. And then you go to the individual accounts, and you've got even a much, much wider.

But the median of all that is almost identical. Yeah, absolutely. And, yeah, as you start to think, I mean, if you think about your target date fund suite, and then from there moving to a managed account, so those managed account participants, because of the personalized nature of that service, you will start to see a little bit more dispersion in those returns, which is really just driven by their equity exposure, especially, you know, for some younger participants, if, let's say, they were going to be a 90% equity in target date funds.

And through advice, maybe they're going to increase that a little bit. They want to take a little bit more risk because of stronger returns here. Over the last five years, they're going to have a little bit of a wider dispersion with managed accounts. And then when you start to look at the do-it-yourself participants, you're going to have some that are 100% equity.

On the flip side, you're going to have some that have no equity at all, and you're really going to run the whole spectrum there. But it's really kind of coming down to is the returns for those that are really high, is that, you know, really, you know, based on skill, or is that maybe more based on luck, as I would say?

Well, I mean, the dispersion is randomness. I mean, you went all the way from the middle, the median is around 8%, but, you know, some people only compounded at 2.2. Some people compounded at 13. And then even the way, way outliners are even taken out of this, like the 95 percentile.

Is that what this is? Yeah. But, you know, a target date fund works just fine in your 401k or even in your IRA. It's a very good investment option if the target date fund is extremely low cost, meaning an indexed target date fund rather than an actively managed target date fund where the fees might be significantly higher.

So I recommend them, even to a lot of clients who are in their 50s or 60s, if they're in a 401k or 403b, a 457, and I say, let's see if there are low cost target date funds available, because often there are, and often they fit right into the client's investment strategy.

And then with the selection of that fund, often we look past the year. The year doesn't really mean that much. What we're looking for is the asset allocation of the fund. So if we want a fund that has 80 percent equity, it doesn't matter what the year is, and then adjust down the road as the glide path takes over.

So it's not always about the target date being the date that you're going to retire. The target date is simply the name of the fund and the fund itself underlying is the asset allocation. Is this what you're looking for? Does this fit what you're trying to do? And if it does, it doesn't matter if it's a 2020 fund, a 2040 fund, or a 2060 fund.

I mean, that's the fund that you use, and then you make adjustments later. Make sense? Absolutely. I mean, when you start to think about the benefits of target date funds, certainly you want to look at cost matter. You want to look at, you know, what those fees are. When we look at the advantages that they have on age-appropriate allocations, they're well diversified.

You have the benefits of continual rebalancing, which in volatile markets can be beneficial. And, you know, as we mentioned, they are really helping participants stay the course with their investments. So they have done an incredible job, especially as they really have come on as, you know, the main default.

I mean, the vast majority of all retirement plans now are defaulting employees in to target date funds. Jeff, I want to thank you for being on Bogle Heads on Investing. A lot of great information. The report is available online. Search for How America Saves 2025, and you can pull up the report.

A lot more information in it than what we had a chance to go over today. I'm looking forward to the next report on the smaller plans. Thank you again for being our guest today. Thank you very much for having me. This concludes this episode of Bogle Heads on Investing.

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