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Portfolio > Mutual Funds > Target Date Funds

EBRI: Nearly three quarters of 401(k) plans include target date funds

By Warren S. Hersch

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Nearly three quarters of 401(k) plans include target date funds in their investment line-up at year-end 2011, new research show.

The Employee Benefits Research Institute, Washington, D.C., arrives at this conclusion in a report on 401(k) plan asset allocation, account balances and loan activity.

The report reveals that at year-ended 2011, 13 percent of the assets in the EBRI/ICI 401(k) database was invested in target-date funds and 39 percent of 401(k) participants held target-date funds. Also known as lifecycle funds, these funds are designed to offer a diversified portfolio that automatically rebalances to be more focused on income over time.

The bulk of 401(k) assets continue to be invested in stocks, the report adds. ON average, at year-end 2011, 61 percent of 401(k) participants’ assets were invested in equities through equity funds, the equity portion of balanced funds and company stock. Thirty-four percent was in fixed income securities, such as stable-value investments and bond and money funds.

More new or recent hires invested their 401(k) assets in balanced funds, including target-date funds, the report adds. At year-end 2011, for example, 51 percent of the account balances of recently hired participants in their 20s was invested in balanced funds, compared with 44 percent in 2010, about 7 percent in 1998. A significant subset of that balanced fund category is target-date funds.

At year-end 2011, 40 percent the account balances of recently participants in their 20s was invested in target-date funds, compared to 35 percent at year-end 2010.

401(k) participants continue to seek diversification of their investments. The share 401(k) accounts invested in company stock remained at 8 percent in 2011. This share has fallen by more than half since 1999.

Also at year-end 2011, 21 percent of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from year-end 2009 and year-end 2010; and up 18 percent at year-end 2008.

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