How America Saves, our popular annual report on DC plan designs and participant behaviors, helps plan sponsors and consultants make more-effective decisions and serves as a valuable reference tool for those working to improve retirement programs. While that research has traditionally focused on large retirement plans, we feel it’s vital to also analyze data from small-business retirement plans and how it can help employees in small businesses prepare for retirement.
The U.S. Small Business Administration reports that 99.9% of businesses in America are small businesses, employing nearly one-half of all private-sector workers.1 Many of those small businesses may not have the resources or bandwidth to benchmark their retirement plans—to compare their plans with those of similar-sized firms.
To provide small-business plan sponsors and advisors with valuable benchmarking data, Vanguard will release How America Saves 2025: Small Business Edition this fall. This report, a supplement to our How America Saves 2025 research, may also help retirement-wealth advisors gain insights into small-business retirement plans.
What follows is a preview of the supplement. It’s an examination of retirement plan data from Vanguard Retirement Plan Access™ (VRPA), which is Vanguard’s comprehensive service for small-business retirement plans. Through VRPA, we were serving about 21,200 plan sponsors and approximately 1 million participants as of year-end 2024.
2024 in perspective
There were several notable economic trends in 2024. The U.S. economy remained strong with real gross domestic product growth. Inflation eased toward the Federal Reserve's target, while unemployment stayed low and real earnings rose. Strong consumer spending followed.
However, while the Federal Reserve began to lower the federal funds rate during the second half of the year, mortgage rates remained elevated, and household debt continued to rise. Meanwhile, the S&P 500 ended with a robust gain of 25%, while the U.S. bond market saw a modest gain of 1%.
Despite all that, our initial findings reveal that participant retirement plan behaviors, in both small and large plans, remained largely unaffected in 2024.
Small business retirement plan insights
Population
The average small plan had 48 participants in 2024, compared with 3,400 participants in the average large plan. Small plans, on average, had $3.9 million in assets, while large plans averaged approximately $500 million.
Plan design differences
Small plans and large plans employ different plan designs, and some differences are significant. The most important difference is with the use of automatic enrollment.
In 2024, 24% of small plans automatically enrolled employees, compared with 61% of large plans. Three in 4 large plans offered immediate eligibility; 1 in 4 small plans did.
More than 70% of small plans utilized a safe-harbor design, compared with 30% of large plans. And 90% of small plans permitted Roth contributions and 98% designated a qualified default investment alternative (QDIA), compared with 86% and 89%, respectively, of large plans. Finally, small plans offered 21.6 funds, on average (when considering a target-date fund series as one fund), compared with an average of 17.6 funds for large plans.
Participation rates
As small plans are significantly less likely to offer automatic enrollment, they have lower participation rates. Fifty-nine percent of employees who worked for small businesses participated in their employer’s plan in 2024, compared with 82% of employees in large plans. When small businesses offered automatic enrollment, 81% of employees participated; 94% of large-plan employees participated when automatic enrollment was offered.
Deferral rates
While participation rates were lower among small businesses, participant saving rates were similar in small and large plans. Within the VRPA population, the average participant deferral rate was 7.7% in 2024, in line with large plans.
Account balances
Small-business participants tend to have shorter tenures, which can result in lower balances. As of year-end 2024, the average small-business account balance was $79,818, compared with $148,153 in large plans. But more importantly, as equity markets increased in 2024, the average account balance for small plans increased by 12%, up from $71,254 as of year-end 2023. This annual increase was in line with that of large plans. It’s also important to note that current balances may not reflect lifetime savings and are only a partial measure of retirement preparedness for many participants.
Investment allocations
Participants with professionally managed allocations have their entire account balance invested in a single target-date fund (TDF), a traditional balanced fund, a model portfolio, or a managed account program.
In 2024, 69% of small-plan participants were invested in a professionally managed allocation, slightly more than in large plans, which had 67% of participants invested in a professionally managed allocation. The differences can be found in the use of single TDFs and managed account programs. Sixty-six percent of small-plan participants were invested in a single TDF, compared with 59% of their large-plan counterparts. The use of managed accounts in large plans was more than four times that of small plans.
Professionally managed allocations have significantly reduced the percentage of participants with an extreme asset allocation (0% or 100% equity). In 2024, 10% of small-plan participants had an extreme equity allocation, slightly higher than the 7% among large-plan participants.
Exchange activity
Participant trading, or exchange activity, is the movement of existing account assets from one plan investment option to another. Excluding those in a managed account program, only 5% of small-plan participants initiated an exchange in 2024, a rate in line with large plans.
Pure TDF investors, those who hold a single TDF, not only benefit from age-appropriate equity allocations and continuous rebalancing but are also far less likely to trade than other investors.
Loan and withdrawal use
Before retirement, there are generally two ways plan participants can access their retirement savings: loans or in-service withdrawals.
Loans are widely offered by DC plans. In 2024, 7 in 10 small plans permitted loans, compared with 8 in 10 large plans. Only 6% of small-plan participants who were offered a loan also had a loan outstanding at year-end 2024, compared with 13% of large-plan participants.
Overall, hardship withdrawal activity has increased over the past few years. In 2024, 2.0% of small-plan participants initiated a hardship withdrawal, up slightly from 1.7% in 2023. Large-plan participants were about 2.5 times more likely to take a hardship withdrawal than participants in small plans. One likely reason for this difference is automatic enrollment, which helps more workers save for retirement, especially lower-income workers. Large plans, likely to include more lower-income participants, tend to have higher withdrawal rates. And for a small subset of workers facing financial stress, hardship withdrawals may serve as a safety net that otherwise may not have been available without plan-implemented automatic solutions.
The hardship withdrawal data from both small and large plans points to the importance of financial wellness and establishing an emergency savings account to help cover unexpected expenses.
Conclusion
Smart plan design features—automatic enrollment with automatic increases, higher employee default rates, and competitive employer contributions—can remove barriers to saving for retirement and help workers improve their retirement readiness.
Additionally, employees have many competing financial priorities, and retirement savings is just one of them. Student loans, health care savings, credit card debt, and emergency savings goals, to name just a few, can be daunting and complex for many workers. Plan sponsors can help support their employees with a cost-efficient, high-quality advice offer as well as guidance on financial well-being—two valuable services that meet participants wherever they are on their financial journey and help provide personalized solutions for their goals.
This is just a glimpse of the insights we will share in How America Saves 2025: Small Business Edition. We hope this preview can help small-business plan sponsors and advisors better prepare participants for retirement. Look for the full report this fall.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Source:
1 U.S. Small Business Administration, 2024.
Notes:
- All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
- Past performance is not a guarantee of future return.
- Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.
- Unless otherwise indicated, all data sourced from Vanguard, 2025.
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