401(k) participants who invested in target-date funds overwhelmingly tend to stick with these investments over time, according to new research by the nonpartisan Employee Benefit Research Institute.
Just over 90% of 401(k) participants investing in TDFs in 2007 stuck with them through 2009, EBRI finds. Using a proxy for the auto-enrollment status of participants, those identified as auto-enrollees are even more likely to have stayed with TDFs, at a rate over 95%.
EBRI’s research finds that 401(k) participants who were younger and have lower account balances are more likely to use TDFs and to continue to use them. Those more likely to stop investing in TDFs are older, had longer tenure, or have higher account balances, although these participants overall stay with TDFs at a high rate.
“Target-date funds are still very new in 401(k) plans, but these results suggest that once they are used, TDFs are very likely to continue to be used for a number of years afterward, certainly in the short term,” says Craig Copeland, senior research director at EBRI and author of the report. “Consequently, the auto-enrollment of participants into TDFs appears likely to stick, which means that the asset allocation within the TDFs is likely to be the asset allocation many of these participants will have while they remain in their 401(k) plan.”
Other key findings:
- In 2007, of those participants in this database, 38.9% had at least some of their account balance in TDFs. By 2008, 42.6% had at least some of their account balance in TDFs, reaching 43.2% in 2009.
- Among participants who were identified as auto-enrollees in 2007, 97.2% were still using TDFs in 2008, and 95.7% used them in 2008 and 2009.
- While a very small percentage of those investing all of their account in TDFs in 2007 stopped using them by 2009, the average participant-weighted allocation for this group to equity funds/company stock/balanced funds in 2009 was 31.1% and approximately 65% to bond funds, money funds, guaranteed investment contracts and/or stable value funds in 2009.
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