Target-Date Funds Will Garner Majority of 401(k) Contributions by 2018

Target-date funds continue to gain ground in the employer-based retirement plan arena. It is estimated that by 2018, they will garner more than 63% of total defined contribution plan participant contributions and account for 35% of total 401(k) plan assets. A new study by Cerulli Associates reported these findings and revealed other key trends influencing target-date funds’ popularity. For instance, 84% of plan participants cited the risk management and asset allocation features of the funds as being “very important,” while 42% were attracted to target-date funds’ built-in diversification qualities. By definition, target-date funds are mutual funds that automatically reset their asset mix of stocks, bonds, and cash equivalents to maintain a risk profile that is appropriate for a particular investor’s “target date” for withdrawals, such as retirement. Over the past several years target-date funds have enjoyed a rapid ascent in the defined contribution plan space, surging from less than $100 million in total assets in 2005, to more than $500 million in 2013. And within the fund category, those funds that track indexes are gaining in popularity, growing from less than 4% of total target-date fund assets in 2003 to 32% a decade later. Young investors, in particular, are attracted to the turnkey, “no fuss” features of target-date funds. Among retirement plan investors in their 20s, target-date funds assume an average allocation of about 34% of their overall plan portfolio, while plan participants in their 60s choose to allocate just 12.5% of their defined contribution plan portfolios to such funds, according to the Cerulli report. The study concluded that asset managers must strategize ways to grow their share of target-date assets or risk becoming obsolete in the defined contribution world.
  1. Investment News, “Target date funds to capture 63% of 401(k) contributions by 2018,” March 26, 2014.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved

Wealth Management Systems Inc.

This article was written for information purposes only and its content should not be construed by any consumer and/or prospective client as rebel Financial’s solicitation to affect, or attempt to affect transactions in securities, or the rendering of personalized investment advice for compensation. No client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from rebel Financial, or from any other investment professional. See our disclosures page for more information.


Comments are closed.