The Power of Staying Invested in Target Date Funds

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 that most participants appear to be buying and holding these funds to or through retirement, as intended, while also shedding light on the investment decisions of those who don’t. The ICI researchers reviewed the investment behavior of approximately 700,000 participants who were invested exclusively in TDFs at year-end 2016 and continued participating through year-end 2022. The study examined how their investment decisions changed over that six-year period, offering insights into how and when participants moved away from TDFs.

Among the findings:

• Of 401(k) participants who were invested solely in TDFs in 2016, 85% remained fully invested in those funds in 2022.
• Among participants who changed their TDF holdings, those in their 60s were more likely to exit TDFs completely, while younger participants were more likely to reduce their TDF allocations without leaving them entirely.
• Among participants in their 60s who exited TDFs, 47% increased their equity exposure by at least 20 percentage points, while 32% decreased their equity exposure by at least 20 percentage points.

While the findings provide valuable insights into participant behavior, the researchers acknowledged certain limitations. The analysis included only participants who maintained 401(k) accounts throughout the six-year study period, reducing the effects of participants and plans entering or leaving the database. The data also did not capture reallocations made within a calendar year or transfers between target-date funds when participants remained fully invested in TDFs.

Source:

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