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NOW: Target-date funds’ rapid growth continues to reshape participant portfolios. At the end of this year’s third quarter, 44% of Fidelity’s 401(k) participants had a 100% allocation to the funds. Among participants ages 20 through 29, 72% are 100% invested in a target-date fund, Thompson says.

As automatic enrollment becomes increasingly typical in 401(k) plans, “the percentage of participants who hold ‘extreme’ asset allocations—0% in equities, or 100% in equities—has come down significantly,” Thompson says. “Now, 12% of our participants have extreme allocations, and, in 2001, 45% had 0% or 100% in equity.”

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FUTURE: Seventy percent of active participants in Aon Hewitt’s 401(k) client plans have some money in target-date funds, Borland says. “But only 55% of individuals who have money in a target-date fund put all their money into the fund,” she
says. “So 45% of TDF users are not using the funds in the way they are designed.” To address that, she says, plan sponsors can think about doing a “back-sweep” re-enrollment of active participants who did not make an affirmative election into their plan’s default investment.

Beyond trying to ensure correct use of target-date funds, DeCamillo says, sponsors continue to look regularly for allocation outliers. For example, do some participants still hold too much in company stock? Once sponsors analyze allocation data and identify specific lingering issues, she says, they can take steps to address those issues, such as limiting the amount of company stock participants may hold in their account.