Target date funds (TDFs) are the most common qualified default investment alternative (QDIA) in 401(k) plans. At year-end 2022, more than two-thirds of participants in the Employee Benefit Research Institute/Investment Company Institute (EBRI/ICI) 401(k) database held TDFs in their account. A recent ICI study suggests most participants appear to buying and holding these funds to or through retirement – consistent with their design – while also shedding light on the investment decisions of those who don’t.
ICI researchers tracked approximately 700,000 participants who were invested exclusively in TDFs at year-end 2016 and maintained accounts through year-end 2022. The study examined how their investment decisions changed over that six-year period, offering insights into how and when participants move away from TDFs. Among the findings:
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Of 401(k) participants who were invested solely in TDFs in 2016, 85% remained fully invested in them in 2022.
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Among participants who reduced or eliminated their TDF holdings, those in their 60s were more likely to exit TDFs completely, while younger participants were more likely to reduce – but not exit their TDF allocations.
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When exiting TDFs, 47% of participants in their 60s increased equity exposure by at least 20 percentage points and 32% decreased it by at least 20 percentage points.
The researchers noted that limiting the analysis to participants who maintained 401(k) accounts throughout the six-year study period reduced the effects of participants and plans entering and leaving the database. They also noted that the data does not capture reallocations made within a calendar year or transfers from one TDF to another when participants remain fully invested in TDFs.
Sources:
https://www.ici.org/system/files/2026-05/per32-06.pdf
https://www.ebri.org/docs/default-source/pbriefs/ebri_ib_658_k-tdf-28may26.pdf?sfvrsn=5704022f_1
