Participants in 401(k) plans are moderating their holdings, shown by a drop in the numbers of people holding almost all equity funds or having no equity funds, a new report says.

According to a sampling of more than 23 million 401(k) participants, 40 percent held more than 80 percent of their funds in equities in 2010; a decrease from 54.1 percent who had 80 percent or more in equities in 2000. The percent that held no equities fell from 12.7 percent to 11.8 percent during that time period.

The comparison in holdings from 2000 to 2010 was made by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI) in a report, 401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2010.

Younger participants represented the only age group in which holdings in equities increased. The report said 60.4 percent of people in their twenties had more than 80 percent of their funds in equities in 2010, an increase from 55.3 percent in 2000.

"That finding runs counter to the notion that younger participants, whose investing experience might be framed by the bear markets of 2000 and 2008, would become a lost generation, avoiding all stock market investments," the survey notes.

The growing use of target-date funds may play a role in encouraging younger participants to invest in equities, the survey concludes. Plan members recently hired by their employers held 35 percent of their account balances in target-date funds in 2010, up from 31 percent in 2009 and 16 percent in 2006, the survey shows.

"Growing use of target-date funds appears to be helping to keep younger 401(k) participants invested in balanced portfolios, with equity exposure to help their assets grow over the long term," says Sarah Holden, ICI senior director of retirement and investor research.

'While our surveys and others have shown that investors are less willing to take on stock market risk, 401(k) plan features are countering that trend for plan participants. That's particularly valuable to provide younger participants diversified portfolios that include growth-oriented investments," she adds.

The survey also shows the share of 401(k) accounts invested in company stock fell to 8 percent in 2010, a steady decline from 19 percent in 1999.

Despite the poor economic conditions, the number of 401(k) participants with outstanding loans against their plans remained unchanged from 2009 to 2010 at 21 percent, but increased from 2008 when 18 percent had outstanding loans.

-Karen DeMasters