Target Date Fund Popularity Grows

A study of defined contribution plan and participant activity in 2013 in plans for which Vanguard performs recordkeeping indicates that the trend toward increasing availability and usage of target date funds* continues.

Target Date Fund Adoption in 2013 notes that 86% of plans offered a target date fund (TDF) in 2013, and 81% of plans have established a TDF or balanced fund as the default investment vehicle.

TDFs attract participants

At the end of 2013, 55% of participants had a position in TDFs, and one-third of plan contributions went to these funds.

Participants potentially reducing risk via TDFs

The study notes that by design the risk taken falls as the participant ages and helps mitigate the problem of extreme allocations among participants.

Ten years ago, 13% of participants did not invest at all in equities (giving up the potential for higher returns) and 22% had their entire balances in equities, leaving them exposed to the higher risks related to equities. Thus, 35% were at the ends of the equity risk spectrum.

By contrast, in 2013 about 23% of “do-it-myself” investors were at either end of this risk spectrum. About 10% had no equity investments and 13% invested solely in that asset class.

Vanguard’s report is at http://tinyurl.com/VanguardTDFs.

* The target date is the approximate date when investors plan to start withdrawing their money. The principal value of a target date fund is not guaranteed at any time, including at the target date.

For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.

Kmotion, Inc., P.O. Box 1456, Tualatin, OR 97062; 877-306-5055; www.kmotion.com

© 2014 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.