Building, maintaining, and administering a retirement plan is complex. There are many decisions—big and small—to consider carefully, especially given your fiduciary responsibility as plan sponsors. It’s a long to-do list.

I believe there are some decisions that should rise to the top of that list given their potential to do incredible good for employees saving for retirement. If more plans adopt the recommendations below, many Americans can have a more secure financial future.

Best practice #1: Make enrollment automatic

One of the acknowledged benefits of the traditional pension system is employees don’t have to enroll or opt into the system. Today’s defined contribution (DC) system is steadily moving in this direction as more plans automatically enroll their employees and get them started on the path to savings. This approach is working. Among the plans we work with, those that have adopted automatic enrollment have seen retirement plan participation rates rise above 80%, regardless of income, age, or job tenure.


Best practice #2: Use plan design to drive savings higher

Adequate savings are the bedrock of retirement readiness, and plan design is the key to helping participants save more. Most employees should have a total savings rate, including employer contributions, of 12% to 15%, or more.[1] That target can be daunting—for employees and employers alike—but we’ve seen clients use a mix of strategies to help participants get to an appropriate savings rate.

Here are a few levers sponsors can pull to boost savings rates:

  • Default rates. The benefits of automation apply to savings rates, too. Participants tend to stay with the savings rate they’re assigned when they join their plan. Setting a higher default rate means employees will start saving more, sooner, and they will likely keep saving at that rate or higher over time.[2] Adding scheduled annual increases to this approach also helps participants gradually increase their savings rates over time.
  • Employer contributions. Of the plans we work with, 95% offer a matching or nonmatching contribution.[3] These contributions go a long way to helping participants build their savings, especially when default savings rates are set to meet the company match. Sponsors also have a lot of flexibility in how they structure their match formulas. We administer more than 225 distinct arrangements to help sponsors meet the needs and goals of their participants.[4]
  • Reenrollments and sweeps. Although these aren’t strictly plan design elements, reenrolling employees who are not in the plan and sweeping participants to a savings rate that earns the full company match are two strategies to get savings higher across an employee base.

Best practice #3: Encourage adoption of low-cost, diversified investments

Investment lineups can be complicated, but simpler is often better when helping participants build a portfolio. The average number of investment options offered by the employers we work with is 18, which counts an entire series of target-date funds (TDFs) as one option. Yet, most participants will use less than three funds to construct their portfolio.[5]

Plan sponsors can help participants make the most of their investment options in a few ways. First, tier your lineup. We recommend a three-tier structure that puts low-cost, all-in-one investments front and center for participants.

Second, make TDFs your default investment option. Just like automation can help employees enroll and save sufficiently in the plan, automatically designating an all-in-one fund such as a TDF as the primary investment vehicle—for new hires and tenured workers–can help participants invest with balance, diversification, and low cost.

There are many more decisions plan sponsors can make to incrementally improve employees’ retirement prospects, but the three steps above are proven strategies for building a best-in-class plan. In fact, as policymakers discuss how to ensure all Americans have access to a quality retirement plan, I’d point to the DC model as one to emulate. When sponsors incorporate the best practices outlined above, DC plans can turn employees’ retirement aspirations into reality.


I’d like to thank Beth Hodge for her much-appreciated contributions to this piece.


[1] How America Saves 2016. The Vanguard Group, Inc., 2016,

[2] Automatic enrollment: The power of the default. The Vanguard Group, Inc., 2015,

[3] How America Saves 2016. The Vanguard Group, Inc. 2016,

[4] How America Saves, 2016. The Vanguard Group, Inc. 2016,

[5] How America Saves, 2016. The Vanguard Group, Inc. 2016,



  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against loss.
  • 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.