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Younger Workers Favor Target Date Funds: Study

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Younger workers favor target date funds in their retirement plan portfolios, according to a just-released study on plan asset allocation.

A joint study released Monday by the Investment Company Institute and the Employee Benefit Research Institute found that 64% of 401(k) participants in their 20s held target date funds. Only 45% of participants in their 60s invest in TDFs, according to the study results, which reflect data as of year-end 2016.

Target date funds tend to focus on growth at the outset, which attracts younger workers and reflects 401(k) plan design intentions.

In addition, recent plan-participant hires with two or fewer years of tenure at an employer use target date funds at a slightly higher rate than all plan participants, at a rate of 59% compared with 52%, according to the study.

“Retirement savers continue to invest heavily in equities through their 401(k) plans,” Jack VanDerhei, EBRI research director, said in a statement. “Though this is in large part driven by younger plan participants, savers in their 60s also remain focused on growth and held 55% of their 401(k) plan assets in equity investments.”

Overall, equity investments held in retirement plans have beefed up since the financial crisis,  according to the study, “401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2016.”

However, plan participant investment in company stock was merely 6% at the end of 2016. Stock investment has been falling for years — in 1999, company stock stood at 19% of assets, the study noted.

About 67% of 401(k) assets were invested in stocks through equity funds, the equity portion of balanced funds and company stock in 2016. The allocation was significantly higher for younger plan participants — 77% of these workers had more than 80% of their account balances invested in equities, the study stated.

In comparison, the percentage of plan participants in their 60s who had more than 80% of their account balances invested in equities stood at 19%, the study found.

One potential new development is with loan activity, which rose slightly in 2016 compared with the previous year’s levels. Nineteen percent of all loan-eligible participants had loans outstanding at the end of 2016, compared with 18% at the end of 2015, according to the study.


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