Target date funds (TDFs) have cemented their position as a core investment option in 401(k) plans by offering age-appropriate asset allocation, diversification, and automatic rebalancing. That's according to new research from the Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI).
The 23-page report, titled "A Closer Look at 401(k) Plan Target Date Fund Investors' Account Balance Asset Allocations Over Time,"details how most of the study's 700,000 participants who were fully invested in TDFs at the end of 2016 remained fully invested over the six-year period studied. This pattern of retention reflects the staying power of TDFs and offers a closer look at how participants use them over time, analysts say.
The study also finds that full-TDF investors with mid-level job tenure were the most likely to maintain their allocations over the six-year period, with retention reaching 88% through year-end 2022.
"The durability of target date funds reflects the value participants place on their intuitive, age-based investment approach," said Shelly Antoniewicz, ICI's chief economist. "Their ability to simplify long-term investing has made TDFs a standard option in many 401(k) plan investment lineups."
"Target date funds have evolved with the goal of helping employees save and invest for their retirement," added Craig Copeland, EBRI's director of wealth benefits research. "As more individuals invest in TDFs in their 401(k) plans, our research shows that most remain invested in them over time, helping them continue to have a diversified investment strategy while accounting for income needs as they move closer to and into retirement."
EBRI/ICI officials say this study is unique because of its inclusion of data provided by a wide variety of plan recordkeepers, which permits the activity analysis of participants in 401(k) plans of varying sizes — from large corporations to small businesses — with a variety of investment options.
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