Target-date funds grew in popularity among 403(b) plans last year as more plans offered this option as a qualified default investment alternative, according to a report issued Wednesday.
Target-date funds were offered by 76.9% of plans last year vs. 70.3% in 2015, according to the report by the Plan Sponsor Council of America and Principal Financial Group based on results from their annual survey. The funds were most popular among the largest plans tracked by the survey — those with 1,000 or more participants — with 85.8% offering this option in 2016.
Target-date funds dominated plans offering auto enrollment and QDIAs, the report said. Last year, target retirement/life-cycle funds accounted for 85% of QDIAs in plans offering auto enrollment. Balanced funds placed a distant second with 8% of plans.
Target-date/life-cycle use as a QDIA has surged steadily in recent years; it was 76.5% in 2015 vs. 34.2% in 2010, the report said.
The report also noted the percentage of plans offering auto enrollment has inched up over the years — reaching 21% in 2016 vs 19% in 2015 and 12.3% in 2010. Most plans offer auto enrollment only to new hires.
"Automation is leading to greater plan enrollment, deferral rate escalation and employee contributions," said Aaron Friedman, national practice leader at Principal, in a news release. "The addition of these features tangibly helps participants boost retirement readiness in practical and customized ways."
The annual survey, which polled executives at 608 plans, was conducted in the spring.
