In recent years, target-date funds have become a preferred investment option of 401(k)s and other defined contribution plans. In January of 2013, the Employee Benefits Research Institute (EBRI) reported that nearly three-quarters of 401(k) plans include target date funds in their investment line-up at year-end 2011.
That share is likely to grow, judging by new research from Cerulli Associates. The Boston-based firm projects that target-date funds as a percentage of 401(k) plan assets will rise to $1.7 trillion by 2018, capturing a whopping 63.4 percent of assets — nearly two-thirds of the market pie. This compares with an estimated $762 billion this year.
Over the same period, target-date contributions as a percentage of 401(k) contributions are predicted to rise 35 percent from less than one-fifth of DC plan contributions currently.
“Plan sponsors, consultants and advisors have increased focus on target-date decisions as plan assets allocated to target-date funds have increased, says Cerulli Director Bing Waldert in a prepared statement. “The leaders among target-date providers have not changed during the past three years, but below the top tier, some asset managers have demonstrated the ability to grow their target-date assets.