Conversely, target date funds accounted for nearly half of all trading outflows. Large U.S. equity funds and company stock followed, with outflows of 22% and 18%, respectively. While target date funds remain the largest asset class by balance (31%), their high outflow rate may indicate participants’ discomfort with their equity exposure during turbulent times. It may also indicate that while TDFs are a good initial savings vehicle, they may not meet participants’ long-term objectives.

Contribution patterns: target date funds still dominate

Despite the outflows, target date funds continued to attract the lion’s share of contributions, receiving 49% of all participant dollars in 2025. Large U.S. equity funds followed at 23% and international funds at 7%. This suggests that while participants may shift allocations in response to market conditions, their default contribution behavior — often tied to plan design and auto-enrollment features — remains steady.

Portfolio allocation: a slight tilt toward equities

By year-end, the average participant portfolio held 73% in equities, up slightly from 72% at the end of 2024. This modest shift reflects both market appreciation and the continued dominance of equity-heavy target date funds in contribution flows.

Market performance: a strong year for equities

The broader market delivered robust returns in 2025, helping to buoy participant balances. The S&P 500 gained almost 18%, while the Russell 2000 rose 13%. International markets outperformed, with the MSCI All Country World ex-U.S. Index posting a gain of almost 33%. Fixed income also delivered solid returns, with the Bloomberg Barclays U.S. Aggregate Bond Index up 7%.

Implications for plan sponsors

The 2025 data offers several actionable insights for benefits professionals:

Reinforce education around market volatility: The early-year surge in trading activity highlights participants’ sensitivity to market downturns. Plan sponsors should consider targeted communications that reinforce long-term investing principles and discourage reactive decision-making.
Evaluate target date fund suitability: The significant outflows from target date funds suggest some participants may not be fully comfortable with an off-the-shelf solution. Sponsors should explore adding other professional investment assistance tools like managed accounts and online advice.
Monitor company stock exposure: With company stock representing 7.3% of total balances and accounting for 18% of outflows, sponsors should assess whether participants are overexposed and consider implementing diversification strategies or education campaigns.
Leverage contribution trends: The continued dominance of target date funds in contributions underscores the importance of default investment design. Sponsors should ensure that default options are well-structured and periodically reviewed for performance and appropriateness.
Prepare for shifts in participant behavior: The contrast between early- and late-year trading activity suggests that participant behavior is highly responsive to market conditions. Sponsors should be prepared to adjust communication strategies and support tools accordingly.

Looking ahead

As we enter 2026, the lessons of 2025 remind us that participant behavior is dynamic and influenced by both market performance and plan design. By leveraging data-driven insights, benefits professionals can better anticipate participant needs, refine plan features and promote retirement readiness across their organizations.

Instant Insights /

What the 2025 trading rollercoaster means for your 2026 retirement plan strategy

More From HR Executive

Related Stories

Recommended For You