Target-Date Funds Continue to Be Popular Among Younger 401(k) Plan Participants

Research on 2019 dataset from EBRI/ICI database finds the bulk of assets overall were invested in stocks.

More 401(k) plan participants held equities at year-end 2019 than at year-end 2007—before the financial market crisis—and most had the majority of their accounts invested in equities, based on an updated joint study released today by the Investment Company Institute and the Employee Benefit Research Institute.

The study, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2019,” found that among participants in their twenties, 54.1% of their 401(k) assets were invested in TDFs at year-end 2019, compared with 28.8% among participants in their sixties. In the year studied, 31.3% of 401(k) assets in the database overall were invested in target-date funds, up from 26.6% at year-end 2018.

On average, at year-end 2019, 68% of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds and company stock. Twenty-nine percent of assets were in fixed-income securities such as stable value investments, bond funds, money funds and the fixed-income portion of balanced funds.

The report also found that 401(k) participants’ investment in company stock continued at historically low levels at the end of 2019, with just five percent of 401(k) assets invested in company stock, in line with recent years.

Target-date funds were available in 87% of the 401(k) plans in the 2019 database. These plans offered target-date funds to 87% of the participants in the database. Sixty percent of all 401(k) plan participants in the database held TDFs, while 69% of participants offered them held the funds. TDF assets totaled 31% of all 401(k) plan assets and 35% of the assets of plans offering TDFs.

As in prior years, the 2019 data shows that participants’ asset allocation varied with age. Younger participants favored equity funds and balanced funds, while older participants were more likely to invest in fixed-income securities such as bond funds, money funds or GICs and other stable value funds.

The study also found that age and tenure with an employer continues to have significant impact on 401(k) account balances. At year-end 2019, participants in their forties with more than five years of tenure had an average 401(k) plan account balance of about $43,000, compared with an average 401(k) plan account balance of more than $330,000 among participants in their sixties with more than 30 years of tenure.

The research also found that a minority of 401(k) participants had loans outstanding. At year-end 2019, 18% of all 401(k) participants eligible for loans had loans outstanding against their 401(k) plan accounts, down slightly from year-end 2018. The size of outstanding loans relative to the size of a participant’s account was also smaller year-over-year, amounting to 8% of the remaining account balance, on average, at year-end 2019, down 2 percentage points from year-end 2018, and well below the historical average. Loan amounts, on average, also decreased in 2019.

The 2019 EBRI/ICI 401(k) database contains information on 73,312 401(k) plans with $0.9 trillion in assets and 11.1 million participants. The database includes 401(k) participants across a wide range of age and tenure groups. For year-end 2019, 48% of participants were in their thirties or forties, while 14% of participants were in their twenties, 25% were in their fifties and 13 % were in their sixties.  

In this dataset, the average account balance was $81,201 and the median account balance was $17,760.