The use of target-date funds by 401(k) plan participants is expected to increase in the future, with younger participants investing more in the funds, according to an EBRI study released today.
On average, target-date fund investors are about 2.5 years younger than those who do not invest in target-date funds, have about 3.5 years less tenure, make about $11,000 less in salary, have $25,000 less in their account, and are in smaller plans, according to the Employee Benefit Research Institute study.
The study, Use of Target-Date Funds in 401(k) Plans, 2007, said 44% of workers under the age of 30 have assets in a target-date fund, compared with 27% for those 60 years old or older. Overall, 37% of participants had investments that averaged 7% of plan assets in target date funds in 2007.
The study concluded that workers who were automatically enrolled in their employers 401(k) plan are significantly more likely to invest all their assets in a target-date fund than those who voluntarily joined, and the auto-enrolled employees also were less likely to have extreme all-or-nothing asset allocations to equities.
The study used data in the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, which has almost 22 million participants that use target-date funds.