Target Date Funds Continue Their 401(k) DC Plan Domination

Target Date Funds 401k: Popularity and Trends Explained

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Little surprise, target date funds (TDF) are a popular choice for 401(k) plans’ investment lineups, especially among younger participants.

An updated study from the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI) found that younger 401(k) plan participants have large allocations to target date funds, being both more likely to hold—and holding more of their accounts in—target date funds than older participants.

At year-end 2018, 62% of 401(k) participants in their twenties held target date funds, compared with half of 401k participants in their sixties. On average, 401(k) participants in their twenties held about half of their 401(k) plan account assets in target date funds, compared with about 23% for 401(k) participants in their sixties.

Target date funds are also used at a higher rate among recently hired plan participants. Among those with two or fewer years of tenure, 57% held target date funds, compared with 54% of participants with

“TDF’s continue to be popular and widely used because they are a convenient investment choice for retirement savers,” Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “By offering both portfolio diversification at every point in time and automatic rebalancing over time, they help savers of all ages manage their asset allocations as they build their retirement nest eggs.”

Other findings in the study include:

Average balances increase with participant age and tenure

For example, at year-end 2018, participants in their forties with more than two years and up to five years of tenure had an average 401(k) balance of about $36,000, while participants in their sixties with more than 30 years of tenure had an average 401(k) account balance of more than $306,000.

Participants’ investment in company stock at historically low levels

Only 5% of 401(k) plan assets were invested in company stock at year-end 2018. This share has fallen by 74% since 1999, when company stock accounted for 19% of assets.

A minority of 401k participants had loans outstanding

At the end of 2018, 19% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from 2016.

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