How well do you know the participants in the plans on which you advise? The sheer number would make it difficult to know them all, obviously, but are you sure your education and enrollment efforts match the demographics?
The 2015 Investment Company Fact Book reports that, on average, younger participants allocate more of their portfolios to equities (which include equity mutual funds and other pooled equity investments; the equity portion of balanced funds, including target date funds; and company stock of their employers).
Research conducted by ICI and the Employee Benefit Research Institute (EBRI), at year-end 2013, individuals in their twenties had 37 percent of their 401(k) assets in equity funds and company stock; 47 percent in target date funds and non–target date balanced funds; and only 9 percent in GICs, stable value funds, money funds, and bond funds.
All told, participants in their twenties had 76 percent of their 401(k) assets in equities. By comparison, at year-end 2013, participants in their sixties had 55 percent of their 401(k) assets in equities. At year-end 2013, individuals in their sixties had 30 percent of their 401(k) account assets in GICs, stable value funds, money funds, and bond funds; only 20 percent in target date funds and non–target date balanced funds; and 44 percent in equity funds and company stock.
Portfolio allocation also varies widely within age groups. At year-end 2013, 65 percent of 401(k) participants in their twenties held more than 80 percent of their account in equities, and 11 percent of these participants held 20 percent or less (Figure 7.14). Of 401(k) participants in their sixties, 22 percent held more than 80 percent of their account in equities, and two out of 10 held 20 percent or less.
Target date funds, introduced in the mid-1990s, have grown rapidly in recent years. A target date fund (including both target date mutual funds and other pooled target date investments) follows a predetermined reallocation of assets over time based on a specified target retirement date.
Typically the fund rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date, which is usually indicated in the fund’s name. Since 2006, the share of 401(k) plans that offer target date funds, the share of 401(k) plan participants offered target date funds, and the share of 401(k) participants holding target date funds all have increased. At year-end 2013, target date funds accounted for 15 percent of 401(k) assets, up from 5 percent at year-end 2006.
In 2013, 71 percent of 401(k) plans offered target date funds, and 66 percent of 401(k) plan participants were offered target date funds. Because not all plan participants choose to allocate assets to these funds, the percentage of 401(k) participants with target date fund assets was lower than the percentage of participants who were offered the option. At year-end 2013, 41 percent of 401(k) participants held at least some plan assets in target date funds. In addition, because not all participants with assets in target date funds allocated 100 percent of their holdings to these funds, and because participants with assets in these funds were more likely to be younger or recently hired and have lower account balances, the share of 401(k) assets invested in target date funds was lower than the share of participants invested in these funds.
Account balances tended to be higher the longer 401(k) plan participants had been working for their current employers and the older the participant. Participants in their sixties with more than 30 years of tenure at their current employer had an average 401(k) account balance of $248,397 at year-end 2013. Participants in their forties with five to 10 years of tenure at their current employer had an average 401(k) balance of $62,087. The median 401(k) plan participant was 46 years old at year-end 2013, and the median job tenure was eight years.
Most 401(k) participants do not borrow from their plans, although the majority have access to loans. At year-end 2013, 21 percent of participants eligible for loans had loans outstanding, the same rate as over the previous four years. However, not all participants have access to 401(k) plan loans—factoring in all 401(k) participants with and without loan access in the EBRI/ICI 401(k) database, only 18 percent had loans outstanding at year-end 2013. The average unpaid loan balances among participants with loans represented about 12 percent of their 401(k) account balances (net of the unpaid loan balances). In aggregate, U.S. Department of Labor data indicate that outstanding loan amounts were less than 2 percent of 401(k) plan
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