Younger 401(k) plan participants have much greater allocations to target-date funds and other balanced funds than older participants, according to a joint study from the Investment Company Institute and Employee Benefit Research Institute.
The survey, "401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2016," shows that as of Dec. 31, 2016, among participants in their 20s, the average asset allocation as a percentage of total assets included 47.6% target-date funds and 7.6% non-target-date balanced funds. The average asset allocation of the next-oldest group in their 30s included only 33.5% invested in target-date funds and 5.9% in non-target date funds. The rest of the older demographics hover around 20% target-date funds and 6% in non-target-date balanced funds.
Among all 27.1 million 401(k) plan participants in the EBRI/ICI database, the asset allocation was 43.5% equity funds, 21.3% target-date funds, 8.2% bond funds, 6.1% non-target-date balanced funds, 5.9% company stock, 5.8% guaranteed insurance contracts and other stable value funds, 5.1% other, 3.1% money funds and the rest unknown. According to the survey, that overall allocation changed little from year-end 2015.
"Target-date funds continue to be a widely available, widely used, popular and convenient investment choice for retirement savers, as they offer portfolio diversification and automatic rebalancing over time," said Sarah Holden, ICI senior director of retirement and investor research, in a news release announcing survey results. "Recently hired workers, in particular, often hold target-date funds in their 401(k) plan accounts, reflecting current 401(k) plan design."
At year-end 2016, 71% of recently hired participants held target-date funds and non-target-date balanced funds in their accounts. Those funds made up 45% of the account balances of that population.
About two-thirds of 401(k) plans, which cover about three-quarters of 401(k) plan participants, offered target-date funds in their investment options lineups, according to the survey.
The 2016 EBRI/ICI 401(k) database includes 110,794 401(k) plans with a total of about $2.05 trillion in assets.