Target date funds (TDFs) are a core investment option in 401(k) plans, according to a study by the Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI). TDFs offer age-appropriate, asset allocation, diversification, and automatic rebalancing.
“Target date funds have evolved with the goal of helping employees save and invest for their retirement,” Craig Copeland, EBRI director of wealth benefits research, said. “As more individuals invest in TDFs in their 401(k) plans, our research shows that most remain invested in them over time, helping them continue to have a diversified investment strategy while accounting for income needs as they move closer to and into retirement.”
The study followed a group of 700,000, consistent 401(k) plan participants from 2016 to 2022 to discover the persistence or flexibility of TDF use. Most participants who were fully invested in TDFs at year-end 2016 remained fully invested through year-end 2022. Those who had mid-level job tenure were the most likely to maintain their allocations over the six-year period, with retention at the end of 2022 reaching 88 percent.
EBRI provides research and education on employee benefit programs and public policy. ICI is a trade association representing the asset management industry and the investors they serve.