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Data & Research March 21, 2011
DC Accounts Grew Despite Recession
Vanguard research shows that defined contribution (DC) savings for most participants
continued to grow over three- and five-year periods, even during the turbulent years of 2008–2009.
Reported by Rebecca Moore
Median and average account balances for Vanguard DC participants rose to $26,926 and $79,077, respectively, at the end of 2010—their highest level since Vanguard began tracking this data in 1999. Over the 2005–2010 period, median participant account balances rose 13%. Among continuous participants, the median rise in account balances was 77%, and nine out of 10 participants had higher account balances in 2010 than in 2005.
The research report noted that even in 2007–2010, the three years beginning near the peak of global stock prices, median balances rose 7%. Among continuous participants, the median rise in account balances was 31%, and eight out of 10 participants had higher account balances in 2010 than in 2007.
An estimated 2% of participants stopped contributing to their employer’s plan in 2010—down from 3.1% observed at the peak of the recession in 2008 and below the prerecession level in 2006, when 2.5% of participants stopped contributing to their employer’s plan. Despite a dramatic surge in stock market volatility during the worst months of the financial crisis, the percentage of participants trading rose only slightly from 14% of participants in 2006 to 16% in 2008, according to the report. In 2010, the percentage trading fell to 12% of participants.
Over the 2007–2010 period, only 3% of participants may have executed “panicked” trades (selling out of equities entirely). During the 2005–2010 period, the net movement of money among traders had been generally toward fixed income investments. Nonetheless, even at the height of the recent market volatility, there were significant gross flows toward equities among some participants.
The analysis of Vanguard DC participants found new loan issuance rose in 2009 and 2010, returning to prerecession levels of 2005. Hardship withdrawals grew 49% over the 2005–2010 period; however, at 2.2% of participants in 2010, the percentage of participants taking hardship withdrawals is still low on an absolute basis. The number of in-service non-hardship withdrawals also grew over this period by 56%.
The number of participants terminating employment who chose cash distributions rose by two percentage points during 2008 and 2009, but then fell back by one point in 2010. About 90% of participants with losses in the 2005 – 2010 period took a distribution from their account—such as a loan or a withdrawal.
The complete Vanguard report is here.