A greater number of 401(k) plan participants are investing in target-date funds. At year-end 2012, the last year for which data was available, 41 percent of 401(k) participants held target-date funds, according to a report by the nonprofit Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), a trade organization representing mutual fund companies.
According to the report, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2012,” published in the December 2013 EBRI Issue Brief, the 41 percent of 401(k) participants who held target-date funds at year-end 2012 represented an increase from 39 percent in 2011 and 19 percent in 2006. In addition, 15 percent of the assets in the EBRI/ICI 401(k) database were invested in target-date funds at year-end 2012, up from 13 percent in 2011 and 5 percent in 2006.
Target-date funds are designed to offer a diversified portfolio that automatically rebalances as the designated retirement year nears to hold more fixed-income assets (bond funds) and fewer equities (stock funds).
Younger participants are more likely to hold target-date funds, and target-date funds represent a much larger share of their 401(k) assets. At year-end 2012, 52 percent of 401(k) plan participants in their 20s had target-date funds, and those funds made up 34 percent of their 401(k) assets.
“More new or recent hires invested their 401(k) assets in balanced funds, including target-date funds,” noted Jack VanDerhei, EBRI research director. “At year-end 2012, nearly 54 percent of the account balances of recently hired participants in their 20s was invested in balanced funds, compared with about 7 percent in 1998. A significant subset of that balanced fund category is invested in target-date funds.”
Among other survey findings:
- 401(k) loan activity steady in 2012.The study showed at year-end 2012 that 21 percent of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from the prior three years (2009−2011), although slightly elevated compared with prior to the financial crisis (2006−2008).
- Average 401(k) account balance.At year-end 2012, the average 401(k) participant account balance was $63,929 and the median account balance was $17,630, with wide variation reflecting the many variables in retirement saving, including participant age, tenure, salary, contribution behavior, rollovers from other plans, asset allocation, withdrawals, loan activity, and employer contribution rates. Older participants and those with longer tenure tend to have higher 401(k) balances at their current employers. For example, at year-end 2012, the average account balance among 401(k) plan participants in their 60s with more than 30 years of tenure was $224,287.
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