Younger workers were more likely to have target-date funds in their 401(k), but older workers are moving in that direction as well.
Younger 401(k) participants were more likely to hold some target-date fund investments, compared with older participants: 42.1% of consistent 401(k) participants in their 20s had target-date funds in their 401(k) accounts at year-end 2013, compared with 28.8% of consistent 401(k) participants in their 60s. Nevertheless, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI), the largest movement toward target-date fund use over the period occurred among consistent 401(k) participants in their 40s, 50, and 60s, and was lowest among those in their 20s.
Between year-end 2007 and year-end 2013, consistent 401(k) participants’ use of target-date funds increased slightly, with few participants moving into or out of these funds. At year-end 2007, 27.1% of consistent 401(k) participants held at least some target-date fund investments in their 401(k) accounts, and that share increased slightly (to 30.4%) at year-end 2013, with the growth occurring across all age groups.
At year-end 2007, 9.0% of consistent 401(k) participants had their entire account balance invested in target-date funds, essentially the same share as at year-end 2013, but small movements to or away from such a full allocation varied by participant age. Younger consistent 401(k) participants moved away from a 100% allocation, on net, while older consistent 401(k) participants edged toward a 100% allocation to target-date funds, on net. For example, 18.9% of consistent 401(k) participants in their 20s had 100% of their 401(k) account invested in target-date funds at year-end 2013, compared with 26.7% at year-end 2007.
At the other end of the age spectrum, consistent 401(k) participants in their 60s moved toward a 100% concentration in target-date funds, on net, if slightly: 9.0% of consistent 401(k) participants in their 60s had 100% of their 401(k) account invested in target-date funds at year-end 2013, compared with 7.7% at year-end 2007.
As noted above, by year-end 2013, ownership in the consistent sample had increased to 30.4%, while ownership of target-date funds in the 2013 cross-section had increased considerably more to 41.2%. Of course, since target-date funds are often used as a default investment option in 401(k) plans with automatic enrollment, some of this growth is likely attributable to the expansion of automatic enrollment plan designs.
