Interest in target-date and other types of balanced funds remained “strong” through 2014, with younger plan participants more likely to hold target-date funds than older participants. That’s according to a new joint study that the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) — both based in Washington, D.C. — released April […]
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Interest in target-date and other types of balanced funds remained “strong” through 2014, with younger plan participants more likely to hold target-date funds than older participants.
That’s according to a new joint study that the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) — both based in Washington, D.C. — released April 28.
Target-date funds, also known as lifecycle funds, are designed to offer a diversified portfolio that automatically rebalances to be more focused on income over time.
In 2014, 60 percent of 401(k) participants in their 20s held target-date funds, compared with 41 percent of 401(k) participants in their 60s.
The study, entitled “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2014,” also found that recently hired participants — those with two or fewer years of tenure — used target-date funds. The results show that 59 percent of recently hired 401(k) participants held target-date funds, compared with 48 percent of 401(k) plan participants overall.
“Target-date funds are a popular, convenient investment choice for savers looking for professional asset allocation, portfolio diversification, and automatic rebalancing over time,” Sarah Holden, ICI senior director of retirement and investor research, said in a news release. “More than 70 percent of 401(k) plans included target-date funds in their investment lineup in 2014, and recently hired workers, in particular, often invest in these diversified funds.”
Among participants who were offered target-date funds, 65 percent opted to buy them, according to the release.
Equities dominate
The study found about two-thirds of 401(k) assets continue to be invested in stocks through equity-only funds, the equity portion of balanced funds, and individual company stock in 2014.
An additional 27 percent of 401(k) assets were in fixed-income securities such as stable-value investments, bond funds, and money market funds.
“The bulk of 401(k) assets continued to be invested in equities at year-end 2014,” Jack VanDerhei, EBRI research director, said in the release. “This is driven in part by younger plan participants, who have higher concentrations in equities. Participants in their 60s remain focused on growth as well, however, allocating 56 percent of 401(k) plan assets to equity investments.”
In 2014, 8 percent of 401(k) plan participants in their 20s had no equities, while three-quarters of those younger plan participants had more than 80 percent of their account balances invested in equities.
In comparison, 12 percent of 401(k) plan participants in their 60s had no equities, while only 22 percent of them had more than 80 percent of their account balances invested in equities.
Other findings
The study also found 401(k) participants’ investment in company stock continued at “historically low” levels. Only 7 percent of 401(k) assets were invested in company stock in 2014.
This share has fallen 63 percent since 1999, when company stock accounted for 19 percent of assets.
In addition, 401(k) participants were “slightly less likely” to have loans outstanding at year-end 2014 compared with year-end 2013.
At the end of 2014, 20 percent of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, down from 21 percent at the end of 2013.
The study found that the average 401(k) account balance tends to increase with participant age and tenure.
For example, in 2014, participants in their 30s, with more than two years and up to five years of tenure, had an average 401(k) balance of close to $25,000.
At the same time, participants in their 60s with more than 30 years of tenure had an average 401(k) account balance of nearly $275,000.
The study is based on the EBRI/ICI database of employer-sponsored 401(k) plans, the largest database of its kind, compiled through a collaborative research project undertaken by the two organizations since 1996.
The 2014 EBRI/ICI database includes statistical information on 24.9 million 401(k) plan participants in 81,139 plans, which hold $1.9 trillion in assets and cover 45 percent of the universe of 401(k) participants.
Contact Reinhardt at ereinhardt@cnybj.com
