Target-Date Funds to Dominate 401(k) Contributions

target401kTarget-date assets are expected to capture almost 90% of 401(k) contributions by 2019, according to research from Cerulli Associates. “The market for target-date funds is highly competitive given the industry’s expectations for future flows, and we anticipate that competition will intensify. Target-date funds captured nearly 40% of flows in 2013, and we expect this number to more than double before the end of the decade,” says Jessica Sclafani, senior analyst at Cerulli.

The Pension Protection Act of 2006, which created the concept of a qualified default investment alternative (QDIA), played a key role in increasing the use of target-date funds in DC plans. Target-date funds provide an ideal investment for DC plans due to their simplicity as a one-stop investment solution, coupled with a significant lack of engagement from participants, she said. The increased use of automatic features, such as auto-enrollment and auto-escalation, will also drive greater assets into target-date strategies. “Asset managers that do not have a proprietary target-date product will be forced to reevaluate their DC strategy, as the assets that are expected to amass in target-date strategies over the next several years cannot be ignored,” Sclafani explains. For more information, visit, www.cerulli.com.

Last Updated 10/20/2021

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