Target Date Fund Use Grows

Research conducted by Vanguard provides more evidence that there continues to be major growth in the use of target date funds in defined contribution plans. At the end of 2010, 79 percent of plans for which Vanguard does recordkeeping offered a target date fund, and nearly half of participants invested in them when offered.

Risk-based lifestyle funds are quickly being replaced by target date funds. From 2004 through 2010, use of risk-based funds declined from 45 percent of plans to 12 percent. During the same period, target date fund usage rose from seven percent to 62 percent.

In 2010, target date funds accounted for one of every seven dollars of plan assets among plans offering them. Participants who enrolled in their retirement plan in 2010 directed 54 percent of their contributions to these funds.

Three-quarters of Vanguard’s plans had a target date fund as the default investment option last year. About two-thirds of plans had specifically designated a qualified default investment alternative (QDIA), and nearly all of those chose a target date fund as their QDIA.

Of the 3.1 million participants studied, 20 percent were invested in just one target date fund. In 2004, only one percent of single-fund participants chose a target date fund. By 2010, 53 percent made that choice.

The Vanguard researchers identified three key factors behind the growing popularity of target date funds:

  • The simplification of investment decision-making for participants
  • The increasingly widespread use of automatic enrollment
  • Target date fund designation as a qualified default investment under the Pension Protection Act.

Details of Vanguard’s Target Date Fund Adoption in 2010 Research Note are at http://tinyurl.com/TargetDateFunds2010.

Pension Plan Limitations for 2011

401(k) Maximum Participant Deferral $16,500* 

(*$22,000 for those age 50 or over, if plan permits)



Defined Contribution Maximum Annual Addition $49,000

Highly Compensated Employee $110,000

Annual Compensation Limit $245,000

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

© 2011 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.