Target Date Funds and other asset allocation strategies are growing in popularity with investors in employer-sponsored defined contribution retirement plans, especially with women and younger workers, according to data tracked by MassMutual’s Retirement Services Division.
First-quarter 2014 data for 401(k) and other defined contribution plans administered by MassMutual show that 26.9 percent of assets were invested in asset allocation accounts, the highest ever tracked by the retirement plan provider. MassMutual serves more than 2.8 million retirement plan participants.
The investments earmarked toward asset allocation accounts have increased by 39 percent since 2009, an indication that target date funds and similar strategies are gaining traction, according to Elaine Sarsynski, executive vice president of MassMutual’s Retirement Services Division. Target Date Funds, also known as age-based or lifecycle funds, automatically reallocate their mix of investments as investors get closer to a predetermined retirement date, typically growing progressively more conservative.
“MassMutual is seeing greater acceptance of asset allocation strategies for retirement planning, especially by women and younger workers,” said Sarsynski. “We attribute the growth in popularity to more employers offering target date funds to meet a growing demand. American workers are opting for retirement savings strategies that are simpler to understand, easier to manage, and reflect their changing needs as they approach retirement.”
MassMutual observes a difference in the acceptance of asset allocation strategies by gender and generation.
In the first quarter, 28.4 percent of women’s assets were allocated to asset allocation accounts as opposed to 27.7 percent by men. Those allocations have increased in the past five years by 42 percent for women and 38 percent for men.
Generation Y or millennials – those between the ages of 20 and 37 – are gravitating to target date funds and other asset allocation strategies in greater numbers, more so than Gen X (ages 36-48), baby boomers (ages 49-68) or the Silent Generation (age 69 and older). A total of 52.1 percent of Gen Y retirement assets were in asset allocation accounts in the first quarter, an increase of 3.3 percent from the same time a year ago.