401(k) Investors Continued to Diversify in 2011

IB.Dec12.380.K-Update.Pg1401(k) savers continued to seek diversified portfolios in 2011, with 61 percent of 401(k) participants’ assets invested in equity securities and 34 percent in fixed-income securities, on average, according to the annual update of a joint study released by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

The study, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011,also finds target-date funds are playing an increasingly important role in that diversification with 72 percent of 401(k) plans offering target-date funds in their investment lineup at year-end 2011, compared with 70 percent at year-end 2010 and 57 percent at year-end 2006. At year-end 2011, 13 percent of the assets in the EBRI/ICI 401(k) database was invested in target-date funds, up from 11 percent in 2010 and 5 percent in 2006. In addition, 39 percent of 401(k) participants held target-date funds at year-end 2011, compared with 36 percent in 2010 and 19 percent in 2006.

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“When planning their retirement savings strategy, participants increasingly use tools such as target-date funds, which are designed to offer a mixed investment portfolio of equity and fixed-income securities that automatically rebalances to be more focused on income over time, to get diversification,” said Sarah Holden, senior director of retirement and investor research at ICI and coauthor of the study. “The study’s findings highlight that 401(k) participants, particularly recent hires, are opting to diversify their account balances, either actively or as a result of plan design.”

The study finds that more new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. For example, 51 percent of the account balances of recently hired participants in their 20s was invested in balanced funds at year-end 2011, up from 44 percent in 2010 and 24 percent in 2006. At year-end 2011, 40 percent of the account balances of recently hired participants in their 20s was invested in target-date funds, compared with 35 percent in 2010 and 16 percent in 2006.

“A growing number of employers have taken advantage of plan design enhancements such as automatic enrollment, contribution acceleration, and qualified default investment alternatives, including target-date funds, that can help participants make better savings decisions,” noted Jack VanDerhei, EBRI research director and coauthor of the study. “That impact is particularly noticeable in the data regarding new hires and younger workers.”

The full analysis is being published in the December 2012 EBRI Issue Brief and ICI Research Perspective, online at www.ebri.org and www.ici.org/research/perspective It was written by ICI’s Holden; EBRI’s VanDerhei; Luis Alonso, EBRI director of information technology and research databases; and Steven Bass, ICI associate economist, based on the EBRI/ICI database of employer-sponsored 401(k) plans, the largest of its kind and a collaborative research project undertaken by the two organizations since 1996. The 2011 EBRI/ICI database includes statistical information on about 24 million 401(k) plan participants, in 64,141 plans, holding  $1.415 trillion in assets, covering nearly half of the universe of 401(k) participants.

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