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August 30, 2011 at 08:00 PM
About 80% of the workers who had all 401(k) plan assets in target-date funds during the 2008 stock market crash have kept the assets in the funds, but some have gone to cash.
Craig Copeland, a researcher at the Employee Benefit Research Institute (EBRI), has published data on 401(k) plan participant use of target-date funds in an analysis of data from a data collection project administered by EBRI and the Investment Company Institute, Washington.
Copeland drew on data from 2007 to 2009 for 20 million participants in about 50,000 plans.
A target-date fund is an investment vehicle with assets that are supposed to be managed in such a way that allocations become more conservative as participants near a designated date.
ABC Fund 2020 might invest much more heavily in bonds and cash, and much less in stock, in 2020; ABC Fund 2050 might take until 2050 to shift heavily toward bonds and cash.
Changes in laws and regulations encouraged employers to make heavy use of target-date funds starting in 2006 and 2006, as the stock market was peaking. The government began to encourage employers to make enrolling in 401(k) plans the default option, and it required employers to use target-date funds, balanced funds or other funds that include stock as the default investment option for plan participants who take no active steps to choose an option on their own.
Copeland designated participants in the data collection as “consistent participants” if they could be tracked in the database from 2007 through 2009 and their plans offered target-date funds throughout that period.
About 43% of all the consistent participants were using target-date funds in 2009, up from 39% in 2007.
