There is a significant increase in the use of balanced funds by recently hired 401(k) plan participants when compared to 15 years ago, according to an annual report by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI).
Two-thirds (66.3 percent) of recently hired 401(k) participants were invested in balanced funds at year-end 2013, compared with less than one-third (28.9 percent) of recently hired participants in 1998.
“These data suggest that regulatory changes have helped make it easier for employers to design their plans to cater to the wide array of 401(k) plan investors, ranging from folks who want to do it themselves--constructing a portfolio from the investments offered--to those who are invested in target-date funds for professional asset allocation, diversification, and rebalancing over time,” said Sarah Holden, ICI senior director of retirement and investor research.
Target-date funds have played a large part in the increased role of balanced funds, according to the research. The study says balanced funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product holding a mix of equities and fixed-income securities including target-date and lifestyle investments.
Across the entire 26.4 million 401(k) plan participants in the EBRI/ICI database, 41 percent held target-date funds, the study found.
For recently hired plan participants, 32 percent were invested in target-date funds.
“Target-date funds provide a convenient investment choice for 401(k) participants to automatically diversify at least a portion of their retirement portfolios and maintain age-appropriate asset allocations even during volatile financial markets,” said Jack VanDerhei, EBRI's research director.