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TDF Adoption Explodes in Vanguard Plans

Plans record kept by Vanguard in 2014 show a growing use not only of TDFs but also of more participants using them as their single investment strategy. Almost all participants (97%) are in a plan offering a TDF; 64% have invested in them, and 80% of new participants are invested in a single TDF.

Other highlights from the Vanguard report include:

  • 39% of participants have invested in a single TDF — a percentage that has doubled in the last five years.

  • 41% of all plan contributions go into TDFs.

  • 23% of all assets are in TDFs.

  • 36% of plans offer auto-enrollment, including 60% of plans with more than 1,000 participants.

  • 94% of QDIAs are TDFs.

  • Most of those participants with mixed investments are due to employer contribution, record keeper corrections or mapping from a previous plan, not through actions of the investor.

  • Participants not using TDFs have higher equity percentages, which do not vary by age.

Clearly, the DC market realizes that using professionally managed portfolios is the present and the future. The questions now center on:

  • What’s the best way to evaluate TDFs based on plan demographics and behaviors of employees, not just performance of the funds?

  • What will record keepers offering proprietary TDFs do to retain assets?

  • Will TDFs or managed investments be customized for the needs of a company or even an individual participant?

  • Will open architecture TDFs take off?