Target date funds (TDFs) are growing and likely to comprise a larger percentage of 401(k) assets, says Paladin Registry, an independent educational resource for investors.
Paladin cites statistics from Target Date Solutions that project that TDFs will grow by 30% per year for the next six years and that they will contain $4 trillion by 2020. It also expects that TDFs will account for half of 401(k) assets by then.
But that’s not to say that TDFs are not already a sizable presence. Paladin cites statistics concerning their significance and popularity:
- There are $800 billion in TDFs, including mutual funds, collective trusts and custom funds, and comprise approximately 25% of the assets in 401(k)s.
- TDFs are used by 100,000 401(k) plans.
- There are 20 million participants in TDFs.
- Three firms — Fidelity, T.Rowe Price and Vanguard — manage 60% of the assets in TDFs.
- The average account size at the target date is $80,000.
- The average equity allocation at target date is 55%.
Paladin expresses concern over three firms managing such a large chunk of the TDF market and suggests that in its view, this puts the funds and plan beneficiaries at risk. Rich Glass of Investment Horizons, Inc., in his white paper “Does Your Approach to Monitoring and Communicating Your Target-Date Funds Need Rethinking?” offers ideas on monitoring TDFs to determine if they are helping participants to achieve a financially secure retirement.
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