DC plan participants continue to move towards target date funds, survey finds

Defined contribution (DC) retirement plan participants continued their move toward target date funds in 2014, according to Northern Trust’s third annual DC Tracker, which noted that nearly one-third of cash flows were invested in the multi-asset class funds during the year. Among core investment options, U.S. equities were the favorite asset class, attracting 19 percent of net flows based on participant investment elections in the DC Tracker universe of 100 plans, as of December 31, 2014.
“Our DC Tracker shows two primary themes among retirement plan investors: an increased reliance on target date funds to determine the investment mix, and a continued bias toward U.S. equities among those who select their own allocation,” said Susan Czochara, Managing Director, DC Solutions at Northern Trust. “The trend toward target date funds has accelerated in recent years, as more DC plans use these funds as the default investment option.

In 2014, target date funds, which are asset allocation vehicles that automatically rebalance and invest more conservatively as a participant nears retirement age, drew 32.7 percent of asset flows in retirement plans tracked by Northern Trust. As a result of those flows, target date funds make up 22 percent of all assets by market value in the 2015 DC Tracker, up from 15.7 percent in the previous year.

“Data from the DC Tracker can be helpful to plan sponsors in identifying issues and best practices as defined contribution plans continue to evolve as the primary retirement savings and investment vehicle for U.S. workers,” said David W. Fox Jr., head of Corporate & Institutional Services in the Americas for Northern Trust. “For example, the 2014 tracker shows a trend toward streamlining investment options and an increase in custom target date solutions offered by larger plans, which often lead the way in DC plan design.”

Source: Northern Trust press release, March 27, 2015.

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