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Portfolio > Mutual Funds > Bond Funds

EBRI: Target Date Fund Ride Scared Some Out of Stocks

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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.

The percentage of target-date fund users who had 100% of their plan assets in the funds fell to about 33% in 2009, from 37% in 2007.

Participants who were enrolled in 401(k) plans automatically made somewhat different use of target-date funds than other participants did, Copeland found.

The percentage of target-date fund users who bailed out of the funds between 2008 and 2009 was 3.4% for employees who signed up to participate and 1.5% for auto-enrollees.

But 83% of the participants who had 100% of their assets in target-date funds in 2007 still had 100% of their assets n target-date funds in 2009, Copeland says.

About 4.1% of the participants who used target-date funds in 2007 had no assets in the funds in 2009, and 58% of those participants had no assets in stock or balanced funds that invest in stock in 2009.

- Allison Bell

Other target date fund coverage from National Underwriter Life & Health:


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