According to a joint study released in December by the Employee Benefit Research Institute and the Investment Company Institute, 72% of 401(k) plans offered target-date funds in their investment lineup at year-end 2011, compared with 70% at year-end 2010 and 57% at year-end 2006.
However, the adoption rate among participants has moved at a slower pace. At year-end 2011, only 13% of the assets in the EBRI/ICI 401(k) database were invested in target-date funds, up from 11% in 2010 and 5% in 2006. In addition, 39% of 401(k) participants held target date funds at year-end 2011, compared with 36% in 2010 and 19% in 2006.
But the study also shows that target-date funds fared better with new or recent hires. For example, 51% of the account balances of recently hired participants in their 20s were invested in balanced funds at year-end 2011, up from 44% in 2010 and 24% in 2006. At year-end 2011, 40% of the account balances of recently hired participants in their twenties were invested in target date funds, compared with 35% in 2010 and 16% in 2006.
“When planning their retirement savings strategy, participants increasingly use tools such as target date funds, which are designed to offer a mixed investment portfolio of equity and fixed-income securities that automatically rebalances to be more focused on income over time, to get diversification,” says Sarah Holden, senior director of retirement and investor research at ICI and co-author of the study.
“The study’s findings highlight that 401(k) participants, particularly recent hires, are opting to diversify their account balances, either actively or as a result of plan design.”
Hung Tran writes for Financial Planning, a SourceMedia publication.
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