More than a third of 401(k) participants who are able to invest in target-date funds are doing so, according to a new EBRI report.
EBRI, a private nonprofit research institute, has found that 37 percent of 401(k) plan participants who were offered target-date funds had at least some fraction of their assets in those funds in 2007.
It also predicts that the popularity of this type of retirement investment will increase given the stress on better diversification of 401(k) assets by plan sponsors, policymakers and financial advisors.
Target-date funds are a type of mutual fund that automatically rebalances assets typically to a more conservative and income-producing mix as the participant’s date of retirement approaches.
The study, which appeared in the March 2009 EBRI Issue Brief has also found that younger workers were significantly more likely to invest in target-date funds than their older counterparts. Almost 44 percent of participants under the age of 30 had assets in a target-date fund, but only 27 percent of those over 60 did.
Participants in target-date funds were also less likely to have all-or-nothing equity allocations relative to those not in the funds.
The Pension Protection Act of 2006 made it easier for retirement plan sponsors to automatically enroll new workers in a 401(k) plan, and target-date funds were approved for a ‘default’ investment if the participant does not make a choice.