The target-date funds, “also known as life cycle funds, are designed to offer a diversified portfolio that automatically rebalances to be more focused on income over time,” the study said, and these funds continue to be a mainstay of 401(k) plan participants.
At the end of 2020, 86% of 401(k) plans, covering 87% of 401(k) plan participants, included target-date funds in their investment lineups.
Target-date funds represented 31% of the assets in the EBRI/ICI 401(k) database, and 59% of 401(k) participants in the database held them.
Still, account balances in 401(k) plans remain relatively modest because of the rising cost of living for America’s retirees. Participants in their 40s with two to five years of tenure had an average 401(k) plan account balance of about $43,000, while those in their 60s with more than 30 years of tenure had an average balance of more than $350,000.
On the positive side, the study found that loans against these 401(k) plans are rarely taken, even though they are widely available. At the end of 2020, 84% of participants were in plans that allowed them to take loans, but only 16% had loans outstanding against their plan accounts, and that was down from the end of 2019.
The loans outstanding amounted to 8% of account balances, on average, at the end of 2020, which was the same as 2019’s year-end number, and well below their historical average, the study said. Loan amounts, on average, increased in 2020, but remained small relative to rising account balances.
“At year-end 2020, only 16% of 401(k) participants who were eligible for loans had loans outstanding against their 401(k) plan accounts, showing the ability of 401(k) plan participants to hold their course in preparing for retirement during unprecedented times,” said another author of the study, Craig Copeland, EBRI’s director of wealth benefits research.
“Even during the turmoil of the Covid-19 pandemic and loosening of the regulations around plan loans in 2020, the percentage of 401(k) plan participants eligible to take a loan who had an outstanding loan balance declined slightly in 2020 from 2019, to a level last seen in the early 2000s,” Copeland added.