Younger 401(k) participants stuck with target-date funds through the financial turmoil of 2008 more than their older co-workers did, according to a study released Thursday by the Employee Benefit Research Institute.
The study, based on data from 21.8 million participants in 56,232 plans with the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, showed only 4.5% of participants with two to five years of tenure with their company who had assets in target-date funds in 2007 dropping allocations to those funds in 2008. By contrast, 14.2% of participants with 30 or more years of tenure with assets in such funds during 2007 dropped those allocations in 2008.
Overall, the study showed that the proportion of 401(k) plan participants using target-date funds rose to 31% in 2008 from 25% in 2007, helped by growing use of those funds as an automatic enrollment default option. The study showed 93.9% of participants with allocations to target-date funds in 2007 continued to use those funds in 2008. Meanwhile, 10% of participants in plans with target-date funds who hadn't used them in 2007 allocated money to those funds in 2008.
Asked about the results, Craig Copeland, a spokesman for EBRI, said in an e-mailed response to questions, the appeal of target-date funds as a long-term asset allocation solution for younger 401(k) participants is one explanation for their apparent devotion to the funds through the recent market turmoil.