A recent article in Pensions & Investments discussed a fund company survey that suggested defined contribution (DC) plan participants aren’t happy with their target-date funds. The survey found that only 22% of participants were “very satisfied” with their target-date investment. The fund company—which isn’t a target-date fund provider—called that “pretty darn low.”
But the survey also found that another 57% of respondents were “somewhat satisfied”—hardly a condemnation, in our view. Altogether, 79% of respondents had a positive view of target-date funds. That seems pretty darn good to us.
In our own recent survey of DC plan participants, we posed a similar question to respondents: “How satisfied are you with target-date fund investment performance in comparison to other funds offered within your plan?” More than 81% of respondents said they were either more satisfied or equally satisfied with target-date performance (Display
). How many were less satisfied? A mere six percent. (The others either were not satisfied with any investments or said they didn’t know.) We think that this is an objective way to frame the question, since it probes respondents’ satisfaction relative to other options available to them.
What’s more, the percentage of respondents who said they were equally or more satisfied has grown to 81% from 62% in our 2009 survey, which was conducted at the very bottom of the market decline. This suggests that target-date funds are hardly losing their appeal.
The Employee Benefit Research Institute (EBRI)—an independent, nonprofit and nonpartisan organization that studies employee health and retirement security programs—corroborated our findings on the continued appeal of target-date funds in their August Issue Brief
. EBRI found that among participants who had all of their account allocated to target-date funds in 2007, a very strong 83% stayed with that full allocation in 2009, through the most turbulent market environment in recent history.
Other findings of our survey indicate a growing appeal and use of target-date funds.
First, target-date fund usage is at its overall highest since we performed our first annual participant survey in 2005. Second, target-date users have been increasing their allocations to target-date funds. The share of target-date users allocating at least 40% of their DC plan assets to these funds has jumped from 44% in 2007 to 58% in 2011. Again, pretty darn good.
We will publish the complete results of our annual survey, “Inside the Minds of Plan Participants, 2011,” later this fall. We’ll share more of our survey findings in the coming months.
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“Target date” in a fund’s name refers to the approximate year when a participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as participants near retirement. Investments in target-date funds are not guaranteed against loss of principal at any time, and account values can be more or less than the original amount invested¾including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.