There is a lot of evidence that lifestyle funds are
growing in popularity.
In a survey published last year, Hewitt Associates said
that more than half (55%) of the large employers canvassed
a 20% jump from 2001 levels (see
Luring More 401(k) Investment Activity
Another report from Greenwich Associates last year noted
that 15% of employers are "seriously" considering adding
the option, and estimated that as many as 40% of larger
plans already offer this option (see
Greenwich Finds DB
Bundling, Advice Trend Higher at Mid-Size Plans
In fact more than three-quarters (
) of this week's respondents do currently offer the funds -
with what can best be described as "mixed" results.
One reader summed up support for the offerings like this: "
I'm a fan of these funds for one reason, they will
adjust the allocation over time and, let's face it,
employees just don't rebalance."
To their credit (IMHO), a surprising number or this
week's respondents were using the lifestyle funds not just
as an option, but as the default investment option (rather
than the traditional money market choice).
As one noted, "
We use Negative Election, hence 49% of all new
contributions are going in to these funds.
Some folks are oblivious to this investment
selection/default process, but many have said, 'Yes those
are the right choices for me.'"
We didn't specifically ask about the current allocation
of assets in the funds, but a number of readers offered
that interesting information.
Simplistically, in terms of overall allocation, it seems to
be 5% to 15% of total plan assets among those who have made
an attempt to track it.
There were exceptions, including the reader who noted,
"About a third of our assets are in LifeStrategy funds,
but part of the reason for the high percentage is that we
mapped our old profit sharing account into the LifeStrategy
Growth Fund when we switched to Vanguard.
Also, we automatically enroll new employees at the 3% level
unless they specifically waive out."
"We are using T. Rowe Price's lifestyle funds,
Retirement Date Funds.
Over half of our participants are invested in one of 5
funds based on your planned retirement date."
"We offer 9 investment choices, 3 of which are
Approximately 30% of the plans assets are directed by the
participants into these funds," offered one respondent.
the Fidelity series back in 2001.
They now constitute almost 9% of plan assets."
There are problems, of course.
"We offer Putnam Retirement Ready Conservative,
Balanced, and Growth funds.
I don't think participants really "get it," though, because
we actually have participants with money in all three."
Some readers who don't currently offer the option did,
once upon a time.
"Greatest disappointment was when we discovered that
participants had invested in two or three of the funds
rather than using a lifestyle fund as a broad mix of
investments targeted toward risk and time.
We discontinued the funds and heard virtually no noise from
Good experiment, poor result."
Others who didn't offer lifestyle funds per se did offer
alternatives to the typical "mix your own" alternative.
"…we offer two stock/debt balanced funds,"
said one respondent,
"one 60/40 and the other 40/60 (roughly).
The 60-40 fund is our default, and we encourage
participants who are not comfortable directing their
investments to stay in the default fund."
Despite the fact that some don't "get it," overall, that
seemed to be a small percentage of the overall audience.
In fact, one reader noted,
"Although we do have some participants who clearly don't
understand the purpose of a lifestyle fund since they've
put a portion of their money into each of the funds, I
think most of the participants do understand the purpose of
That same reader went on to note,
"However, that being said, they all still chose to put
only a small portion of their account into a lifestyle fund
and have invested the balance of their accounts in other
funds that they've chosen.
So they either believe they might be able to get better
returns by choosing some of their own investments or they
don't understand the purpose of a lifestyle fund as much as
I think they do."
Some respondents were opposed to the concept, generally
on the basis of fees, or in some cases, the objection was
"If you went to a Registered Investment Advisor for
investment advice, and they asked you just one single
question, 'In how many years do you plan to retire?' and
from that gave you an asset allocation, they could be
stripped of their license to practice.
One question does not make for proper due-diligence."
"I believe these funds may be attractive to employees
who want to take the mystery out of the selection process.
However, I personally believe in educating our workforce
through a targeted communication program which addresses
risk and return characteristics in connection with the
funds offered and then further expands into the associated
investment fees tied to their selections."
One reader described their experience this way:
"We have seen more money going into them in the past
couple of years in total, but I've not broken the activity
out by age or salary or anything else which might give some
Now I know what to do with myself this afternoon...."
But this week's
goes to the reader who explained, "
We introduced them in January 2003 and had VERY HIGH
hopes for them…Thirty-six percent of our participants are
using the options but with only 8% of their assets.
Those using the Target funds should have the majority of
their assets in those funds, but they have only 30% in
Those using the Target funds should use fewer funds than
those who are not using them, but they use more (average of
5.4 versus 2.4).
Thirty-six percent of our participants are using the
options but only 1% strictly as intended (100% of their
assets in the funds and only using one or two of them).
[Pause…take deep breath…recite Serenity Prayer…]…These
funds are awesome.
We have very high hopes for them…."
everyone who participated in our survey!