Retirement plan participants who invest in target-date funds tend to stay with them, the Employee Benefit Research Institute announced Tuesday. More than 90% of 401(k) participants who invested in TDFs in 2007 continued investing in them through 2009, the survey found. Those who used automatic enrollment were even more likely to remain in target-date funds.
The organization used data from the EBRI/ICI 401(k) database for the study. It found that one-quarter of 401(k) participants used target-date funds in 2007, increasing to 31% in 2008 and to 33% in 2009. TDFs are frequently the default investment choice for plans with automatic enrollment, one reason for the increase in TDF use. Consequently, the investors most likely to stick with target-date funds are young and have low account balances. While their older, wealthier counterparts were more likely to stop investing in TDFs, overall, they still maintained a high utilization rate.
“Target-date funds are still very new in 401(k) plans, but these results suggest that once they are used, TDFs are very likely to continue to be used for a number of years afterward, certainly in the short term,” Craig Copeland, senior research director at EBRI and author of the report, said in a statement. He added that the popularity of auto-enrollment features means that the asset allocation within TDFs will likely be the same asset allocation TDF investors hold as long as they remain in their 401(k).