Younger Participants Gravitate to TDFs, Balanced Funds

Younger 401(k) participants have larger allocations to target-date funds (TDFs) and other types of balanced funds than do older participants, according to a joint study by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI). At the end of 2016, 64% of participants in their 20s owned a TDF, compared with 45% of those in their 60s.

The study, “401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2016,” shows that among recent hires—i.e., those on the job two years or less—59% are invested in a TDF, compared with 52% of participants overall.

“Target-date funds continue to be a widely available, widely used, popular and convenient investment choice for retirement savers,” says Sarah Holden, senior director of retirement and investor research at ICI. “Recently hired workers in particular often hold target-date funds in their 401(k) plan account, reflecting current plan design.”

More participants hold equities than before the financial crisis of 2008. Sixty-seven percent of 401(k) assets in 2016 were invested in stocks through equity funds, balanced funds or company stock. Twenty-seven percent of the assets were in fixed-income securities, including stable value funds, bond funds, money market funds and the fixed-income portion of balanced funds.

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

Only 7% of participants in their 20s in 2016 had no equities, and 77% had more than 80% of their balance invested in equities. By comparison, 11% of participants in their 60s had no equities, and only 19% had more than 80% of their balance in equities.

At year-end 2016, participants in their 40s with between two and five years of tenure had an average account balance of $38,000, and those in their 60s with more than 30 years of tenure had an average account balance of $287,000.

Only 6% of 401(k) plan assets in 2016 were invested in company stock, down from 19% in 1999.

Nineteen percent of participants eligible for a plan loan had an outstanding loan in 2016, up from 18% in 2015.