Q: Are target date funds popular with younger 401(k) plan participants?
A: Analysis by the Employee Benefit Research Institute (EBRI) indicates that target date funds are increasingly attractive to those in their 20s and 30s. In fact, at the end of 2010, more than one-third (35%) of the account balances of recently hired participants in their 20s were invested in target date funds.
EBRI found that in 2006, the percentage of recently hired 401(k) participants (defined as two or fewer years of service) investing in target date funds was 28%. That grew to 44% in 2008 and to 47% in 2009. At the end of 2010, the number was almost 48%.
Two recent surveys indicate that plan sponsors have shifted their attention from simply raising participation rates, to broader and more fundamental topics involving retirement plan participants.
Deloitte’s Annual 401(k) Benchmarking Survey, 2011 Edition found that only 15% of plan sponsors think that most employees will be financially prepared for retirement. About 85% responded that only some or very few employees will be financially secure.
Final Service Provider Disclosure Rules Are Issued
The Department of Labor (DOL) has issued final regulations specifying required service provider fee disclosures to retirement plan fiduciaries. The purpose of the rules is to assist plan fiduciaries in determining the reasonableness of compensation paid to covered service providers and any conflict of interest that might affect a provider’s performance under a contract with the fiduciaries. The DOL’s regulations seek to help plan fiduciaries make better decisions when selecting and monitoring service providers.
401(k) Maximum Elective Deferral $17,000*
(*$22,500 for those age 50 or over, if plan permits)
Defined Contribution Maximum Annual Addition $50,000
Highly Compensated Employee Threshold $115,000
Annual Compensation Limit $250,000