Nearly one-third, 29%, of the three million 401(k) participants that Vanguard serves had their portfolios in a target-date or balanced fund, or a managed account advisory service, according to Vanguard’s 10th annual “How America Saves.”

Twenty percent held one target-date fund, a dominant trend because 79% of the plans Vanguard services offered target-date funds at the end of 2010. Six percent held one traditional balanced fund, and 3% used a managed account program.

The use of professionally managed programs has increased significantly in the past eight years; in 2004, just 7% of all Vanguard participants were invested in an automatic investment program.

“The growing number of participants taking advantage of professionally managed investment programs and services in their plan clearly shows that the 401(k) system can offer investors a successful way to invest for retirement,” said Jean Young¸ co-author of the report. “These services have the potential to dramatically reshape portfolio outcomes for participants because they address the need of many individuals who don’t have the skills to manage their retirement assets.”

In addition, 30% of plans offered online advice, and 12% offered managed accounts. Although financial planning services are offered to all participants with plan sponsor authorization, only 15% of participants use advice services when offered, with managed accounts the most popular.

By the end of the year, the average 401(k) plan balance held with Vanguard reached $79,077, with a mean of $26,926, the highest level since Vanguard began tracking this data in 1999. The median balance in 2010 grew 31%; the last time it grew at that rate was in 2007.

“Account balances have been cited as too low to be helpful in retirement,” said Steve Utkus, co-author of the report. “But keep in mind that the typical participant is a 46-year-old male who is saving 8.8%, with 20 to 25 more years to work and grow his account. His retirement plan assets will be complemented by Social Security benefits and other savings, perhaps assets in other employer plans or a spouse’s plan, or personal savings. Even though we always encourage people to save more—ideally at least 12% to 15% of their income—the reality is that many participants may be on target for retirement.”

The report also found that 24% of Vanguard plans have adopted automatic enrollment, up from 21% in 2009. However, only 74% of workers participate in their plan, down from 76% in 2009, which Vanguard attributed to difficult economic conditions.

The average deferral rate in 2010 was 6.8%, with a median of 6.0%, unchanged from 2009. The deferral rate peaked at 7.3% in 2007. Vanguard attributed the decline in deferral rates partly to economic conditions and partly to automatic enrollment, typically set at 3% of income.

Employee and employer combined contributions are also down, averaging 9.7% in 2010, with a median of 8.8%. Vanguard said some employers have suspended or lowered their contributions in the recent economic downturn.

Likewise, in 2010, 18% of Vanguard participants had a loan outstanding against their 401(k). However, only 2.2% of participants took a hardship withdrawal in 2010.

Plans are also seeking low-cost fund choices, with 40% of the plans Vanguard serves offering index funds as their core.

Among those eligible for a rollover distribution, 70% either kept the money in the Vanguard plan, put it into an IRA or moved it to a new employer plan.

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