Shifting trends in investments – and the long-term fears that retirement savers have developed after being burned by the stock market in past years – have led to a significant growth in target-date funds in America's 401(k) accounts, among other diversification measures.
According to 401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2011, a joint study created by the Employee Benefit Research Institute and the Investment Company Institute, nearly three quarters of 401(k) plans offer TDFs as a part of their investment options by the end of 2011, up from 57 percent back in 2006.
And while 61 percent of 401(k) participants' assets were, at the end of 2011, invested in equity securities and 34 percent in fixed-income securities, the percentage of participants taking part in TDFs is on the rise. Stock investments do, however, still form the largest percentage of 401(k) investments nationally.
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By the end of 2011, the study indicates that 39 percent of 401(k) participants were actively invested in TDFs, up from 36 percent a year earlier and only 19 percent in 2006.
At year-end 2011, 13 percent of the assets tracked in the EBRI/ICI 401(k) database was invested in TDFs, up from 11 percent in 2010 and just 5 percent in 2006.
New or recent hires, new to 401(k) plans, are also making the most aggressive use of balanced funds, which include TDF funds. At year-end 2011, more than half of the account balances of new employees in their 20s was in balanced fund accounts, a massive increase from the 7 percent figure recorded back in 1998.
Overall, 401(k) participants are working to diversify their investments, with just 8 percent of holdings invested in company stock at the end of last year – a share that has fallen by more than a half since 1999.
"When planning their retirement savings strategy, participants increasingly use tools such as target-date funds, which are designed to offer a mixed investment portfolio of equity and fixed-income securities that automatically rebalances to be more focused on income over time, to get diversification," said Sarah Holden, senior director of retirement and investor research at ICI and coauthor of the study.
"The study's findings highlight that 401(k) participants, particularly recent hires, are opting to diversify their account balances, either actively or as a result of plan design."
Participants have also continued to borrow against their own savings, a trend which blossomed during the worst years of the recent economic downturn. By the end of 2011, 21 percent of the 401(k) participants who were eligible for loans through their service providers had outstanding loans – the same number as it was in both 2010 and 2009.
Outstanding loan amounts represented 14 percent of the remaining account balance of 401(k) accounts, as well.
"A growing number of employers have taken advantage of plan design enhancements such as automatic enrollment, contribution acceleration, and qualified default investment alternatives, including target-date funds, that can help participants make better savings decisions," noted Jack VanDerhei, EBRI research director and coauthor of the study.
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