Majority of young employees saving for retirement with TDFs

A growing number of younger participants in 401(k) retirement plans are investing in target-date funds, according to a recent analysis.

Using data from the EBRI/ICI 401(k) database, Employee Benefit Research Institute finds that the percentage of recently hired 401(k) participants with two or fewer years of tenure holding TDFs jumped from 43.6% in 2008 to 46.6% in 2009 increasing slightly to 47.6% in 2010.

The December 2011 EBRI Issue Brief and ICI Research Perspective annual update on the EBRI/ICI 401(k) database, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity In 2010” reveals that recent hires in their 20s — 52% in 2010 — are especially likely to hold TDFs compared with 41.7% of recent hires in their 60s.

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) employers to automatically enroll employees in the plan to boost retirement savings. Employees can opt out of the retirement plan if they choose. Target-date funds are often used as a “default” investment for employees who are auto-enrolled.

Although there has been rapid growth in the use of TDFs in 401(k) plans in recent years, TDFs are relatively new for a large portion of employees.