Target-date fund strategies in employer-sponsored defined contribution plan accounts reached $2.1 trillion in assets at the end of 2017, up from $1.3 trillion in 2015, according to research from the Defined Contribution Institutional Investment Association released Wednesday.
At year-end 2017, mutual funds accounted for $1.1 trillion, or 51%; collective investment trusts accounted for about $622 billion, or 29%; while custom TDFs represented an estimated $430 billion, or 20%, according to the Custom Target Date Fund Survey. DCIIA credited improved reporting, auto enrollment and a bull market as reasons for the significant increase in TDF allocations.
This was DCIIA's inaugural custom TDF survey and was started in late 2017. Asset allocation service providers for custom TDFs, which submitted non-attributable plan statistics and asset allocation detail for custom TDF clients, participated in the survey. From there, a sample was created for asset allocation statistics, which reflects 65 plans and 673 unique funds. The custom TDF assets represented in the sample exceed $340 billion, while plan assets exceed $990 billion.
A majority of the average custom TDF exposure is allocated to equities and fixed income, the survey found. The average allocation to equities for target year 2060 funds was 85%, while the average allocation to fixed income was 7% for 2060 funds.
"Publicly available information on institutional strategies in the defined contribution market, specifically (custom) TDFs, has been limited," DCIIA President and CEO Lew Minsky said in a news release. "With roughly half of the $2 trillion of target-date assets residing in institutional vehicles, DCIIA is uniquely positioned to gather the necessary data and provide information about these default investment options."
When the Pension Protection Act of 2006 was passed, it provided a mechanism for employers to default American workers into long-term savings plans and has given target-date strategies a major growth opportunity, DCIIA noted. Now, 85% of institutional defined contribution plans use target-date strategies as the default investment, according to the survey.