When it comes to helping employees save for retirement, plan design matters more than almost any other factor. Vanguard’s 2025 How America Saves – Small Business Edition provides a fascinating look at how small-business 401(k) plans are evolving — and which features are becoming the new norm.
Here’s what the 2024 data shows from more than 21,000 small business plans using Vanguard Retirement Plan Access™ (VRPA).
🧩 The Most Common Plan Design Features in 2024
| Feature | 2024 Adoption | Why It Matters |
|---|---|---|
| Safe Harbor Design | 71% of plans | Eliminates certain annual nondiscrimination testing and lets owners and HCEs contribute the full IRS maximum. |
| Automatic Enrollment | 24% of plans | Participation jumps when employees are enrolled automatically. This figure has grown steadily from 16% in 2020 — and will likely accelerate as SECURE 2.0 provisions take hold. |
| Automatic Annual Increases | 57% of auto-enroll plans | Automatically nudges savings higher each year, often by 1%. |
| Roth 401(k) Contributions | 91% of plans offer; 21% of participants use | Tax diversification is trending upward, especially with Roth catch-up contributions becoming mandatory for higher earners in 2026. |
| Catch-Up Contributions (Age 50+) | >99% of plans offer; 17% use | Standard feature but underused. |
| Loans | 70% of plans offer; 6% of participants have one | Access to liquidity is valued but used sparingly. |
| Hardship Withdrawals | 87% of plans allow; 2% of participants used | Rarely used, suggesting overall financial stability among participants. |
💡 Investment Design Trends
| Feature | 2024 Data | Insight |
|---|---|---|
| QDIA (Qualified Default Investment Alternative) | 99% of plans designate one | Nearly universal — and crucial for fiduciary protection. |
| Target-Date Funds (TDFs) | 97% of QDIAs are TDFs; 46% of all plan assets | The “one-fund” retirement solution continues to dominate. |
| Professionally Managed Allocations | 69% of participants | Reflects growing trust in automated, diversified investment solutions. |
| Average Investment Options | 21.6 funds per plan | Small plans offer plenty of choice, though most participants use just 1–2 funds. |
💰 Participant Behavior Snapshot
- Average employee deferral rate: 7.7%
- Median deferral rate: 5.8%
- Average total savings (employee + employer): 12.9%
- Participation rate: 73% (plan-weighted)
- Participation with auto-enrollment: 81% vs. 52% in voluntary plans
These figures reinforce one of the most consistent findings in behavioral finance: automatic plan features dramatically improve outcomes.
🔍 What It Means for Employers
Small-business 401(k)s are catching up fast to large-plan best practices. The data highlights a few clear takeaways for plan sponsors:
- Automation is now the baseline, not the exception.
Auto-enrollment and annual increases help employees overcome inertia — and can boost participation by 20-30%. - Roth options are essential.
With SECURE 2.0’s Roth catch-up requirement for high earners in 2026, it’s time to ensure your plan is ready. - Safe Harbor designs remain the backbone.
For small businesses, they simplify compliance and allow owners to maximize their own savings. - Target-date funds dominate the default.
With nearly all plans using TDFs as the QDIA, fiduciary risk is reduced and diversification improved. - Education still matters.
Features are only effective when employees understand them — especially for catch-up and Roth contributions.
🧠 Fiduciary Takeaway
The direction is clear: plans that automate, simplify, and standardize tend to deliver better outcomes. If your company’s 401(k) doesn’t yet include these features, it may be time to revisit your plan design — especially with new SECURE 2.0 provisions reshaping the landscape for 2025 and beyond.