I am a bit behind on my reading but I finally got around to reading Vanguard's "How America Saves" 2025 edition. Rather than spew endless statistics from the report, I thought I might ponder what I was reading from a social justice angle. After all, aren't we in the retirement industry trying to get all Americans to retire with dignity?
It is important to note that the surveyed plans have fewer than 50 participants and plan assets of around $3.9 million. This is crucial because as is shown, the observed behaviors in small plans is markedly different from larger plans. This then brings about different conclusions for employees in small plans.
Small plans exhibit distinct design characteristics compared with larger plans. Only about 24 % of small plans use automatic enrollment, far below the roughly 61 % adoption in larger plans, and conditional automatic escalation is similarly lower. Safe harbor designs are more prevalent in small plans — roughly 70 % adopt safe harbor provisions — partly as a response to testing burdens in small employee populations.
Participation rates in small plans remain below those of large plans. The plan-weighted participation rate for small plans is in the low-70 % range; on a participant basis, about 60 % of eligible employees participate. Automatic enrollment materially increases participation: in small plans with auto-enrollment, participation rates approach the low-80 % range versus roughly 50 % with voluntary enrollment.
Savings Behavior and Outcomes
Employee deferral behavior in small plans continues at historically strong levels, with average participant deferral rates around 7–8 % of pay and median rates around 5–6 % — roughly in line with larger plans. However, median account balances for small-plan participants — approximately $15,000 — are significantly lower than in large plans, reflecting shorter tenures and lower accumulated savings.
It is possible that employee turnover in smaller plans could be higher as well due to limited upward mobility and salary increases. And when an employee leaves a company, there is a heightened opportunity for them to take a distribution which can be harmful to their long-term retirement prospects.
Compensation and Participation Disparities
A persistent theme in the data is the link between income levels and participation. Small-plan eligible employees have lower median incomes (about $59,000) than those in larger plans (about $81,000), and nonparticipants in small plans have median incomes markedly lower than participants. This pattern reinforces the well-documented behavioral trend that lower-income workers participate at lower rates when enrollment is voluntary. My thinking would be it is essential to use auto-enrollment in smaller plans and yet I sometimes find more resistance there. The Plan Sponsor does not want to dictate what someone does.
Analysis Through a Social Justice Lens
From a social-justice perspective, the report underscores structural limitations in how retirement savings outcomes correlate with broader labor and income equity challenges. Several points warrant attention:
Wage levels influence retirement readiness. Lower median incomes in small business workforces contribute to lower participation and lower accumulated balances. Without a living wage baseline, discretionary deferrals — critical to 401(k) plan success — become difficult for employees to prioritize. This aligns with broader research demonstrating that income adequacy is a prerequisite for effective long-term saving.
Design adoption inequities. Small plans lag in automatic enrollment and escalation despite these features being among the most powerful levers to improve retirement participation. The administrative and cost barriers that inhibit adoption of best-practice features disproportionately affect sponsors and employees in smaller firms, contributing to a retirement readiness gap.
Safe harbor prevalence partly compensates for testing burdens but does not directly address wage and access disparities that limit participation among lower-income employees.
The Parting Glass
Collectively, the data suggest that plan sponsors who aim to close participation and savings gaps should consider both fiduciary enhancements (e.g., adopting automatic enrollment with higher default rates, auto-escalation, financial wellness support) and advocacy for compensation practices that enable workers to meaningfully defer. The structural hurdles of low wages and intermittent employment patterns in many small businesses mean that retirement readiness cannot be disentangled from broader questions of income adequacy and equitable compensation policy.