According to research from EBRI (Employee Benefit Research Institute) and the ICI (Investment Company Institute),
a greater percentage of younger workers and new hires in 401k plans are using target date funds compared to older workers.
The research shows that:
- 70% of all DC plans offer a TDF
- 60% of workers in their 20’s invest in TDF
- Just 41% of workers in their 60’s use them
- 59% of recently hired employees hold TDFs compared to 48% overall
So are younger workers and new hires making better decisions? Probably not. Although TDF investors generally do better, the growth of these investments is primarily due to the fact that they are becoming the most popular default investment or QDIA which became popular when the use of TDF as the default, along with auto-enrollment, was given safe harbor in the 2006 Pension Protection Act.
Other highlights from the EBRI/ICI research based on a database of almost 25 million participants and over 81,000 plans with $1.9 trillion of DC assets from year end 2014 include:
- The use of company stock is down 63% from 1999
- There are slightly fewer loans since the previous year
- Account balances of people in their 30’s with two-five years’ tenure average $25,000
- Account balance of those in their 60’s with +30 years’ tenure are nearly $275,000
There’s good reason and research to show that when people start investing early using professionally managed investments that are re-balanced and change risk profiles as people get closer to retirement, investors do better. So while the EBRI/ICI research is encouraging, the low account balances are not although if participants’ holdings in all DC plan and IRA accounts were added up, the picture might be a bit different. And we still have not figured out how to accommodate a work force that changes jobs frequently by carrying over their deferral rate from their previous job. Duh!
