Target-date funds are now the dominant asset holding among those in their 20s, but they are much smaller components for other 401(k) participants.
According to a recent update from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), TDFs now represent 35% of the account balances of those in their 20s (another 12.4% is invested in balanced funds), compared with 31.9% in equity funds.
In contrast, just 13% of the balances of participants in their 60s are invested in TDFs. Even among participants in their 30s, target-date funds represent just under 23% of their balance (and balanced funds only 8.2%), while equity funds comprise nearly 45%.
Hire Powered?
But is it more about age, or hire date? At year-end 2013, more than half (52%) of participants in their 20s held TDFs, compared with 35% of participants in their 60s. Perhaps as a result of the growing use of automatic enrollment and qualified default investment alternatives (including TDFs), recently hired participants were more likely to hold TDFs than those with more years on the job: at year-end 2013, 51% of participants with two or fewer years of tenure held TDFs, compared with 41% of participants with more than five to 10 years of tenure, and a quarter of participants with more than 30 years of tenure. Industry surveys suggest that only about a third of auto-enrolling plans extend that to current workers (see ‘Choice’ Architecture — for Plan Sponsors).
Indeed, at year-end 2013, nearly two-thirds of recently hired participants held balanced funds in their 401(k) accounts. Balanced funds were 41% of the account balances of recently hired 401(k) participants at year-end 2013. In contrast, at year-end 2013, only about 58% of 401(k) participants held balanced funds, the same as in 2012; 41% of 401(k) participants held target-date funds, 18% held non-target-date balanced funds, and 2% held both.
About two-thirds of recently hired 401(k) plan participants in 2013, 2012, and 2011 held balanced funds, compared with less than half in 2006, and only a third in 2002. At year-end 2013, just over half (51%) of recently hired 401(k) participants held TDFs, while 16% held non-target-date balanced funds.
Moreover, among those who held balanced funds, recently hired participants in 2013 were more likely to hold a high concentration of their accounts in balanced funds compared with past years. At year-end 2013, more than three-quarters (77%) of recently hired participants holding balanced funds had more than 90% of their account balance invested in balanced funds, compared with 43% in 2006, and 7% in 1998.
Concentration ‘Camps’
Concentration was highest among recently hired participants with TDFs; at year-end 2013, 81% of recently hired participants holding TDFs held more than 90% of their account balance in that asset type. Additionally, more than half (56%) of recently hired participants holding non-target-date balanced funds had more than 90% of their account balance invested in non-target-date balanced funds at year-end 2013.
About a third (35%) of participants held more than 80% of their accounts in balanced funds at the end of 2013, though nearly 43% of participants held no balanced funds.
Target-date funds were available in 71% of the 401(k) plans in the year-end 2013 database, and those plans, in aggregate, offered TDFs to two-thirds of the participants in the EBRI/ICI database. Among participants who were offered TDFs, 62% held them at year-end 2013. TDF assets represented nearly a quarter (24%) of the assets of plans offering such funds in their investment lineups.
As of Dec. 31, 2013, the EBRI/ICI database included statistical information about 26.4 million 401(k) plan participants, in 72,676 employer-sponsored 401(k) plans, holding $1.912 trillion in assets. The 2013 EBRI/ICI database covers about half of the universe of 401(k) plan participants, nearly 15% of plans, and 46% of 401(k) plan assets.
