Study Shows Participants Who Use TDFs Stick with Them

August 31, 2011 ( – 401(k) participants who invested in target-date funds (TDFs) overwhelmingly tend to stick with these investments over time, according to new research conducted by the Employee Benefit Research Institute (EBRI).     

An EBRI news release states just over 90% of 401(k) participants investing in TDFs in 2007 stuck with them through 2009. Using a proxy for the auto-enrollment status of participants, those identified as auto-enrollees were even more likely to have stayed with TDFs, at a rate of over 95%.

EBRI’s research found 401(k) participants who were younger and had lower account balances were more likely to use TDFs and to continue to use them. Those more likely to stop investing in TDFs were older, had longer tenure, or had higher account balances, although these participants overall stayed with TDFs at a high rate. 

“Target-date funds are still very new in 401(k) plans, but these results suggest that once they are used, TDFs are very likely to continue to be used for a number of years afterward, certainly in the short term,” said Craig Copeland, Senior Research Associate at EBRI and author of the report, in the news release. “Consequently, the auto-enrollment of participants into TDFs appears likely to stick, which means that the asset allocation within the TDFs is likely to be the asset allocation many of these participants will have while they remain in their 401(k) plan.” 

The use of target-date funds (TDFs) in 401(k) plans has increased rapidly in recent years, EBRI said. The portion of 401(k) plan participants using TDFs increased from 25% in 2007 to 31 percent% in 2008 and to 33% in 2009. According to EBRI, one of the reasons for this growth is TDFs have been a popular choice for the default fund when 401(k) plans have an auto-enrollment feature. Consequently, younger participants with lower account balances, and participants with shorter tenure at their current job have been found to be more likely to use them.  

Key findings in the study show:

  In 2007, of those participants in the EBRI's database, 38.9% had at least some of their account balance in TDFs. By 2008, 42.6% had at least some of their account balance in TDFs, reaching 43.2% in 2009. Furthermore, 36.6% of this consistent group of 401(k) plan participants had some of their account balance allocated to TDFs in 2007 and 2008. Just over 35% of these participants had at least some assets allocated to TDFs in 2007, 2008, and 2009. 

  Among participants who were identified as auto-enrollees in 2007, 97.2% were still using TDFs in 2008, and 95.7% used them in 2008 and 2009. While those not identified as auto-enrollees continued to invest in TDFs at a lower rate than those identified as auto-enrollees, there was a very high overall persistence rate in TDF use from 2007−2009: just over 90%. 

  Of the consistent group of participants using TDFs in 2007, 36.9% had all of their account allocated to TDFs. The remaining 63.1% of those using a TDF had less than 100% of their allocation in TDFs. In 2009, slightly more participants (67.2%) had less than 100% of their allocation in TDFs. 

  Among only those participants who had all of their account allocated to TDFs in 2007, a very high rate (83%) stayed at a 100% TDF allocation in 2009. Almost 13% of those who had a total allocation to TDFs in 2007 had an allocation lower than 100% (but not a zero) allocation in 2009. Only 4% of participants with a 100% TDF allocation in 2007 had stopped using them by 2009. 

  While a very small percentage of those investing all of their account in TDFs in 2007 stopped using them by 2009, the average participant-weighted allocation for this group to equity funds/company stock/balanced funds in 2009 was 31.1% and approximately 65% to bond funds, money funds, guaranteed investment contracts (GICs), and/or stable value funds in 2009. 


The EBRI report examines the use of TDFs by a consistent group of 401(k) participants in plans that offered them in 2007 through 2009, using the data from the EBRI/ICI 401(k) database. Results are published in the August EBRI Issue Brief, “Target-Date Fund Use in 401(k) Plans and the Persistence of Their Use, 2007−2009,” online at