Target date fund investing continues to be prevalent in 401k plans, particularly among younger participants, according to an updated joint study released today by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI).
The study, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2019,” found that among participants in their twenties, 54.1% of their 401k assets were invested in target date funds at year-end 2019, compared with 28.8% among participants in their sixties. At year-end 2019, 31.3% of 401k assets in the database overall were invested in target date funds, up from 26.6% at year-end 2018.
Recently hired 401k plan participants were more likely to be invested in target date funds at year-end 2019. Among those with two or fewer years of tenure, 65% held target date funds, compared with 57% of participants with more than 10 to 20 years of tenure, and 43% of participants with more than 30 years of tenure. Overall, 60% of 401k plan participants had target date fund investments at year-end 2019.
“Target date funds continue to be a popular and convenient investment choice for 401k plan participants,” said Sarah Holden, ICI senior director of retirement and investor research. “Target date funds offer both portfolio diversification at every point in time and automatic rebalancing over time, helping investors of all ages manage their asset allocations as they save for retirement.”
The study also shows that more 401k plan participants held equities at year-end 2019 than before the financial crisis of 2008. Data show that investment in equities is an especially popular choice for younger plan participants. About two-thirds of participants in their twenties had more than 80% of their 401k accounts invested in equities at year-end 2019, up from less than half of participants in their twenties at year-end 2007.
Overall, almost 95% of 401k participants had at least some investment in equities at year-end 2019. Equities include equity funds, the equity portion of balanced funds (including target date funds), and company stock (the stock of the participant’s employer).
“401k plan participants continue to invest heavily in equities mainly through equity funds and target date funds,” said Craig Copeland, EBRI director of wealth benefits research. “Younger 401k plan participants who remain more focused on growth as they invest in their futures tend to have a higher emphasis on equities.”
Other findings in the study include:
- Average 401k account balances increase with participant age and tenure. For example, at year-end 2019, participants in their forties with more than two years and up to five years of tenure had an average 401k account balance of about $43,000, while participants in their sixties with more than 30 years of tenure had an average 401k balance of more than $330,000.
- 401k participants’ investment in company stock continued at historically low levels. Only 5% of 401k plan assets were invested in company stock at year-end 2019. This share has fallen by 72% since 1999, when company stock accounted for 19% of assets.
- A minority of 401k participants had loans outstanding. At the end of 2019, 18% of all 401k participants who were eligible for loans had loans outstanding against their 401k accounts, down slightly from year-end 2018. U.S. Department of Labor data indicate that outstanding loan amounts were less than 2% of 401k plan assets in 2019.
The study is based on the EBRI/ICI database of employer-sponsored 401k plans, compiled through a collaborative research project undertaken by the two organizations since 1996. The project is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, represents the activity of participants in 401k plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.
The 2019 EBRI/ICI database includes statistical information on 11.1 million 401k plan participants in 73,312 plans, which hold $0.9 trillion in assets, and covers 18% of the universe of active 401k participants.
Full results of the annual EBRI/ICI 401k database update are posted on each organization’s website, at www.ebri.org and www.ici.org/research/investors/ebri_ici.
SEE ALSO:
• Employer Skepticism of ‘Traditional’ Target Date Funds Grows
• The Ideal Glidepath for Target Date Funds
• Target-Date Funds Are Not Safe Because Bonds Are Not Safe