The number of recently hired 401(k) plan participants (new hires in 2013) using balanced funds, including target-date funds, has increased significantly compared to new hires 15 years ago.
That’s according to a newly updated annual report that the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) released Dec. 18 and posted on the EBRI website.
Both organizations point to the “evolution” of 401(k) plan design, which they say has resulted in the increase.
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The study, called “401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2013,” found that nearly two-thirds of recently hired 401(k) participants were invested in balanced funds at the end of 2013, compared with less than one-third of recently hired participants at the end of 1998.
In addition, more than three-quarters of recent hires had invested more than 90 percent of their 401(k) account in balanced funds at the end of 2013. Results are published in the December EBRI Issue Brief (www.ebri.org) and ICI Research Perspective (www.ici.org).
“These data suggest that regulatory changes have helped make it easier for employers to design their plans to cater to the wide array of 401(k) plan investors, ranging from folks who want to do it themselves — constructing a portfolio from the investments offered — to those who are invested in target-date funds for professional asset allocation, diversification, and rebalancing over time,” Sarah Holden, ICI senior director of retirement and investor research, said in a news release. “This evolution in plan design has resulted in increased diversification across asset categories, on average, for 401(k) plan participants.”
Target-date funds have played a large part in the increased role of balanced funds, the organizations said.
Recently hired 401(k) plan participants had 41 percent of their 401(k) plan assets invested in balanced funds at the end of 2013, while 32 percent invested in target-date funds.
The research finds that across the entire 26.4 million 401(k) plan participants in the EBRI/ICI 401(k) database, target-date funds represented 15 percent of plan assets, and 41 percent of 401(k) plan participants, overall, held target-date funds.
“Target-date funds provide a convenient investment choice for 401(k) participants to automatically diversify at least a portion of their retirement portfolios and maintain age-appropriate asset allocations even during volatile financial markets,” Jack VanDerhei, EBRI research director, said in the release. “The growing use of these funds in recent years, especially among new 401(k) participants, has been accompanied by a marked decrease of young participants with zero equity exposure. The increased use of target-date funds has also been associated with a decrease in older participants with high concentrations in equities as well as a continued reduction in the allocation to company stock among 401(k) participants.”
Investments in equities
The EBRI/ICI analysis indicates that 66 percent of 401(k) plan participants’ accounts were invested in stocks at the end of 2013 — through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, and company stock.
It also found that 90 percent of 401(k) plan participants held at least some stocks in their accounts.
Even though equity funds represented the largest share of 401(k) plan assets, the analysis also found target-date funds, which often are invested to a significant
degree in stocks, also are playing an important role.
The report indicates younger 401(k) plan participants had higher allocations to equities — accounting for more than three-quarters of 401(k) assets among participants in their 20s or 30s, compared with older participants.
Participants in their 60s had a little more than half of their 401(k) assets invested in stocks, the analysis found.
About the study, EBRI/ICI
The organizations based the study on the EBRI/ICI database of employer-sponsored 401(k) plans, the “largest of its kind” and a collaborative research project that the two organizations have undertaken since 1996, according to the news release.
The 2013 EBRI/ICI database includes statistical information on 26.4 million 401(k) plan participants in 72,676 plans, which hold $1.912 trillion in assets and cover about half of the universe of 401(k) participants.
Washington, D.C.–based EBRI, established in 1978, says it is an “independent, nonpartisan, nonprofit research and education organization committed exclusively to data dissemination, policy research, and education on economic security and employee benefits.”
ICI, founded in 1940 and also based in Washington, D.C., is the national association of U.S. investment companies, including mutual funds, closed-end funds, unit-investment trusts, and exchange-traded funds.
Members of ICI manage total assets of $17.4 trillion and serve more than 90 million shareholders.