Vanguard retirement account balances are increasing and holdings are more diversified for participants in 401(k) and other defined contribution plans than they were in the past, according to a recent study by the Valley Forge, Pa.-based investment management company.

Despite a slight decline in the number of plan participants, the average account balance was $69,000 at the end of 2009, up 23% from the end of 2008, according to the study of Vanguard's 3.2 million plan participants.

That account balance would seem low for anyone within 10 to 15 years of retirement. But Steve Utkus, head of Vanguard's Center for Retirement Research and a co-author of the report, says typical participant is a 45-year-old male who is saving 9.4% and will likely work another 20 to 25 years. "Even though there's always room for improvement, many participants are on track to be in good shape for retirement," he said.

About two thirds of the participants had account balances at the end of 2009 that were higher than they were in September 2007, just prior to the stock market peak of October 2007, reflecting increased values of assets and ongoing contributions. Over the 27-month period, a minority of 6% saw declines of more than 30%.

Another change has been seen in the increase in participants who are invested in professionally managed automatic investment options, including target-date funds, balanced funds and managed account programs. The percentage rose from 7% five years ago to 25% in 2009.

Vanguard researcher Jean Young notes it is encouraging that more participants are investing in diversified funds, but says the challenge is to reach more participants who may still be investing unwisely in just one type of fund.

The study notes, in particular, those participants invested in target-date funds. At the end of 2009, target date funds were offered by 75% of plan sponsors and 42% of participants in those plans use them, the study says.

At the same time, total plan participation has decreased 2% from 2008, likely reflecting the difficult economic times. The average employee contribution rate also declined slight to 6.8% from the peak in 2007 of 7.3%. Once employer contributions are added in, the average contribution rate in 2009 was 9.4%. Young concludes that these numbers indicate many people are better off in their retirement planning than had previously been assumed.