Vanguard Introduces 'One Step' Program to Simplify Retirement Decisions For 401k Participants
VALLEY FORGE, PA, December 16, 2003 -- The Vanguard Group today announced that it has developed an innovative retirement and investment program for 401k plan sponsors that simplifies the entire retirement process for their employees. The new program, called "One Step(TM)," incorporates all aspects of retirement planning by automatically enrolling employees in their 401k, increasing plan contributions by a set percentage annually, providing automatic asset allocation of investments over time, and advising participants on potential asset distribution vehicles upon retirement.
"The goal of the One Step program is to ease the many complexities of retirement planning for employers and plan participants," said Bert Dalby, Principal, Vanguard Institutional Investor Group. "One Step provides participants with a single, automatic solution to their retirement needs. It will help participants get on the right track in terms of savings and investing, and subsequently leverage inertia to their advantage."
The One Step program is based on findings that have emerged from the field of behavioral finance--including research completed at Vanguard. "Many workers struggle with making critical retirement savings decisions," notes Stephen Utkus, Principal, Vanguard Center for Retirement Research. "Instead, inertia and procrastination rule their financial lives. For these participants, an automatic savings and investment program is essential."
"Auto-pilot" 401k programs like One Step may also be part of the solution to the long-term retirement savings problem in the U.S. Policymakers have promoted automatic enrollment as one possible approach. But researchers have established that automatically enrolled participants stay at low savings rates and in conservative investment options. Vanguard's One Step program addresses these drawbacks with a comprehensive solution.
Vanguard's One Step program consists of automatically enrolling employees in their 401k once they are eligible for participation (depending on plan rules). Participants' contributions are set to increase annually and future contributions are invested in one of six Vanguard(R) Target Retirement Funds -- a series of low-cost, funds-of-funds that gradually and automatically shift their underlying fund mix to a more conservative asset allocation as the participant's retirement date draws near. Upon retirement, participants can obtain advice from Vanguard on whether to receive distributions from their plan, invest in an IRA, or invest in an annuity such as Vanguard's Lifetime Income Program, which is an annuity that provides a periodic (generally monthly) income stream to meet living expenses and other spending needs once retirement begins.
A key driver in Vanguard's decision to create the One Step program was the firm's success implementing the Save More Tomorrow (commonly known as SMarT) automatic savings plan. With this program, designed by Richard Thaler at the University of Chicago and Shlomo Benartzi at UCLA, two noted researchers in behavioral finance, participants sign up today to have their deferral rates increased automatically in the future.
Vanguard's successful pilot of SMarT with Philips Electronics North America in 2002 led to the introduction of the automatic contribution increase component of One Step to 80 Vanguard clients--targeting over 200,000 participants--in November 2003. The success of the pilot underscores the notion that automatic decision-making may help address participant inertia more broadly--not just in the savings decision, but also in plan participation and investment decisions.
"One Step builds on the success of our SMarT program, and addresses all four decisions critical to participants: whether to participate, how much to save, how to invest, and how to distribute assets upon retirement," said Mr. Dalby. "It offers clear-cut solutions for the more passive participant--while still allowing motivated workers the flexibility to make their own choices within their employer's plan."
Vanguard said it will roll out One Step in January 2004.
The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation's second largest mutual fund firm and a leading provider of company sponsored retirement plan services. Vanguard serves some 17 million shareholder accounts and manages more than $665 billion in U.S. mutual fund assets, including over $205 billion in employer-sponsored retirement plans. Vanguard offers 118 funds to U.S. investors and 35 additional funds in foreign markets.
Note to Editors: For research on the concepts of behavioral finance and their application to "auto pilot" 401k solutions, please see "Lessons from Behavioral Finance," co-authored by Olivia S. Mitchell of the Wharton School and Stephen P. Utkus of Vanguard, at www.vanguardretirementresearch.com or http://rider.wharton.upenn.edu/~prc/wp2003.html.
For more complete information about Vanguard funds or Vanguard annuity products, contact us or visit www.vanguard.com to obtain a fund prospectus or the prospectuses for the annuity contract and for the underlying funds. Investment objectives, risks, charges, expenses, and other important information about the product are contained in the prospectuses; read them carefully before investing.
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