Target-date funds continue their steady growth, moving closer to becoming the top investment asset allocation within defined contribution plans, according to the latest quarterly analysis by Callan Associates.
The Callan DC Index for the quarter ended Dec. 31 shows target-date funds accounted for 21.1% of assets among the plans tracked by Callan, second only to large-cap domestic equity, at 23.7%.
For the year-earlier quarter, the target-date allocation was 15.7% vs. 23% for large-cap domestic equity.
The gain for target-date funds is due to increased inflows as well as their growth as qualified default investment alternatives, said Lori Lucas, executive vice president and defined contribution practice leader at Callan.
“The stickiness of the money moving into the target-date funds has been impressive,” said Ms. Lucas, referring to the fact that money flowing into these investment options rarely flows out.
For the year ended Dec. 31, the Callan DC Index said target-date funds dominated the amount of money flowing into DC plans during the year with 70.7% of the total flows into DC plans going into target-date funds, according to a Callan report issued Thursday.
The Callan DC Index follows about 80 DC plans per quarter, representing nearly 800,000 participants and nearly $100 billion in assets.
Among the plans tracked by Callan each quarter, 85% offered target-date funds last year vs. 78% in 2012, Ms. Lucas said.
In fact, solely among the plans offering target-date funds, these funds have been the asset allocation leader since the end of 2012, she said. By year-end 2013 for this group, the target-date fund allocation was 27%, vs. 23% for large-cap domestic equity, the second most popular choice.
