A growing number of recently hired participants in 401(k) retirement plans—particularly those in their 20s— are investing in target-date funds, according to an analysis by the not-for-profit Employee Benefit Research Institute (EBRI) and the Investment Companies Institute (ICI), an industry group.
Using data from the EBRI/ICI 401(k) database, researchers found that:
• The percentage of recently hired 401(k) participants (those with two or fewer years of tenure) holding target-date funds reached 47.6 percent in 2010, up from 28.3 percent in 2006.
• Recent hires in their 20s were especially likely to hold target-date funds: 52 percent of them did so in 2010, compared with 41.7 percent of recent hires in their 60s.
The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan, so as to boost retirement savings. Workers can opt out of the retirement plan if they choose. Target-date funds are often used as a “default” investment for workers who are auto-enrolled. While there has been rapid growth in the use of target-date funds in 401(k) plans in recent years, they are still relatively new for most participants.
Target-Date Funds: On Target or Out-of-Date?, HR Magazine, September 2011
401(k) Participants Who Use Target-Date Funds Tend to Stick with Them, SHRM Online Benefits Discipline, September 2011
Plan Sponsors Pick and Choose Funds in Target-Date Series, SHRM Online Benefits Discipline, August 2011
Target-Date Funds: Four Key Considerations for Plan Sponsors, SHRM Online Benefits Discipline, April 2008
SHRM Online Benefits Discipline
SHRM Online Retirement Plans Resource Page