Small businesses employ nearly half of all private-sector workers and represent the vast majority of employers offering defined contribution retirement plans. New Vanguard data suggests their employees are demonstrating some encouraging retirement savings behaviors.
Vanguard’s How America Saves 2026: Small Business Edition, cited in a recent BenefitsPRO article, examined plans with up to $50 million in assets and found that plan designs are improving while participants continue to save at relatively strong rates.
Among the findings:
- Employer contributions remain competitive. Nearly 60% of plans offering a match provided a maximum match between 3% and 5% of pay in 2025. The median match was 4%, equal to the median among larger plans. The average combined employer and employee contribution rate was 11%, with a median of 9%.
- Target-date funds play a significant role. They held 47% of small-plan assets, slightly more than in large plans, and received 60% of participant contribution dollars.
- Participants use loans and hardship withdrawals relatively little. Although 70% of plans permitted loans, only 6% of eligible employees had an outstanding loan at the end of 2025. And while 87% allowed hardship withdrawals, just 3% of participants used them.
But participation remains an area where small plans lag behind their larger counterparts.
Participation rates have remained relatively steady for the past eight years and continue to trail those of large plans, which Vanguard attributes primarily to lower availability of automatic enrollment. Income may also play a role: Eligible workers in small plans had a median income of $61,000, compared with $82,000 among those in large plans, and lower-income employees generally participate at lower rates.
Eligibility requirements may create another hurdle. Only about one-quarter of small plans allowed employees to begin contributing immediately in 2025. Another 41% required one to six months of service, while 36% required a full year. By comparison, more than three-quarters of large plans offered immediate eligibility.
For plan sponsors, fiduciaries, and advisors, Vanguard’s latest How America Saves survey suggests that improving small-plan outcomes may be as much about removing barriers to participation as encouraging employees to save more once they enroll. Reviewing automatic enrollment, eligibility requirements, and other plan design features could help more workers get started, while strong contribution rates and relatively low use of loans and hardship withdrawals suggest many participants are already making retirement savings a priority.
