The stock market’s constant seesawing is making 401(k) investors sick. If you’re concerned participants may back off their investments and stick more money under their mattresses, it may be time to add another option to your plan.
Target-date funds may be a new player on the scene, but they work great at retaining savers — and attracting news ones, according to recent research by the Employee Benefits Research Institute (EBRI).
The beauty of target-date funds: They take the confusion out of retirement savings for employees. All a participant has to do is pick a year he/she plans to retire, and the fund will automatically adjust the asset mix (stocks, bonds, cash equivalents) as needed to become more conservative as the person’s retirement date draws near. It’s saving for retirement — on autopilot.
Persistence of use
The advantage for plan sponsors: Participants who invest in target-date funds overwhelmingly tend to stick with these investments for the long haul.
The numbers, which came out in an August 2011 EBRI report, make a compelling case:
- 97.2% of participants who were auto-enrollees in target-date funds in 2007 were still using the funds in 2008
- 95.7% of 2008 auto-enrollees remained invested in target-date through 2009, and
- 90% of participants who were not auto-enrollees but still invested in target-date funds in 2007 remained invested in the funds by 2009.
Another advantage
One thing you may want to share with target-date participants: f they want their investments to be invested more or less aggressively, they can play with their retirement date.
Example: Example: A participant planning to retire in 2035 wants to invest more aggressively than the standard plan calls for. So she sets her target date at 2045, which gives her more years to put her savings in riskier investments like stocks. Someone who wants to be less aggressive can set an earlier retirement date.
