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%.
About 52% of recent hires in their 20s held target date funds at the end of 2010, versus 42% of recent hires in their 60s.
Large numbers of recently hired participants in their 30s (almost 48%) and 40s (45%) are also investing in these funds.
Overall, target date funds are increasingly popular with participants in all age groups. But, the most rapid growth in their popularity is clearly among participants in their 20s.
EBRI’s Fast Facts report on this topic is at http://tinyurl.com/EBRITargetDate.
Q: What is the amount of ERISA bond coverage we should have for our retirement plan?
A: ERISA requires that every fiduciary of an employee benefit plan be bonded in order to protect the plan against loss resulting from dishonesty, fraud or theft by persons who handle funds for the plan.
The value of the bond must be equal to at least 10% of the total amount of funds handled during the previous plan year. (“Funds handled” is generally viewed as the total of the plan’s assets.) The bond must be at least $1,000 and not more than $500,000. If the plan holds employer stock, the maximum is $1,000,000.
Remember that the ERISA bond differs from fiduciary liability insurance. While the bond protects the plan from fraud and dishonesty, fiduciary liability insurance generally protects the employer or fiduciaries from losses due to a breach of fiduciary duty. While the bond is required, liability insurance is not.
Q: What major steps did plan sponsors take last year in response to the economic situation?
A: The Plan Sponsor Council of America (PSCA) surveyed more than 500 plan sponsors near the end of last year and found that about half of those who had suspended their matching contribution in the previous four years had fully restored it.
Of all plans responding, two-thirds maintained their match, 12% increased it or added a match, 7% had restored a reduced or suspended match, and about 14% still had a suspended or reduced match.
Other steps were reported in the PSCA’s 401(k) and Profit Sharing Plan Response to Current Conditions survey results. Almost two-thirds (64%) of sponsors changed their investment option menu in 2011, up from 56% in 2010 and only about 20% in 2009.
More than half of the respondents increased employee education efforts last year, and 43% offered education specifically related to financial market volatility.
The PSCA’s report is available at http://tinyurl.com/PSCACurrentConditions.
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