While most 401(k) retirement plan savers continue to invest heavily in equities, the asset allocations of plan participants in their twenties at the end of 2015 differed significantly from those of plan participants in their twenties in the mid-1990s, shifting away from equity funds and company stock and toward balanced funds, a study conducted by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) found.

Published on August 3, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015,” is the latest update of a 1999 joint study that analyzed 1996 data from the EBRI/ICI database. At year-end 2015, the EBRI/ICI database included statistical information on 26.1 million 401(k) plan participants in 101,625 employer-sponsored 401(k) plans with $1.9 trillion in assets. In the new study, the authors were able to make a cross-generational comparison of 401(k) investors in their twenties in 1996 and 2015 by drawing on 20 years of data analyzed in the EBRI/ICI series of annual studies on 401(k) participants’ activities.

The research showed that throughout the study period, the share of assets younger 401(k) participants invested in equities was high: plan participants in their twenties held 80% of their aggregate assets in equities at year-end 2015, or only slightly more than the 77% of assets held in equities by their 1996 counterparts. But the analysis also found that the vehicles younger savers used to invest in equities changed between 1996 and 2015: whereas savers in their twenties allocated 55% of their aggregate assets to equity funds in 1996, this share had fallen to 28% by year-end 2015. Meanwhile, the share of assets that these younger 401(k) participants allocated to company stock decreased from 17% in 1996 to 5% at year-end 2015.

The findings further indicated that compared to their 1996 counterparts, younger 401(k) participants in 2015 were much more heavily invested in balanced funds, including target-date funds. According to the analysis, participants in their twenties in 1996 allocated only 8% of their 401(k) plan assets to balanced funds (target-date funds were not reported separately in the database before 2006); whereas their counterparts in 2015 invested 54% of their assets in balanced funds, with nearly half (47%) of these assets invested in target-date funds.

The authors emphasized that trends among investors in their twenties are mirrored across all age groups in the database: among all investors, allocations to equity funds declined from 53% in 1996 to 43% in 2015, and allocations to balanced funds increased from 7% of assets in 1996 to 25% in 2015.

The analysis also showed that target-date funds have been growing in popularity among 401(k) investors of all ages, and particularly among recently hired participants. The study found that among all participants, investments in target-date funds rose from 5% of assets at year-end 2006 to 20% of assets at year-end 2016, and that nearly half of the 401(k) participants tracked in the database held these funds. In addition, the study found that recently hired participants have become especially likely to hold target-date funds, and to have allocated a large portion of their balances to these funds: the findings showed that at year-end 2015, 60% of recently hired participants held target-date funds, and that these funds accounted for more than one-third of their assets.

The results of the analysis also revealed that among all of the 401(k) participants studied, investment in company stock remained at historically low levels in 2015: less than 7% of 401(k) assets were invested in company stock at year-end 2015, roughly the same share as in 2012, 2013, and 2014; but down sharply from 1999, when 63% of participants were invested in company stock, and company stock accounted for 19% of assets. The study also found that recently hired 401(k) participants have been investing in company stock at especially low rates: at year-end 2015, around one-quarter of recently hired 401(k) plan participants in plans offering company stock held company stock, compared with around 43% of all 401(k) participants.

From Benefit Trends Newsletter, Volume 60, Issue 10

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