Understanding Changes Over Time in Asset Allocation of 401(k) Plan Target Date Fund Investor Account Balances (pdf)

A Closer Look at 401(k) Plan Target Date Fund Investors’ AccountBalance Asset Allocations Over Time Key Findings Drawing from the EBRI/ICI 401(k) database, this paper follows a group of consistent 401(k) plan participants overa six-year period. A few key insights emerge from looking at the 0.7 million consistent 401(k) plan participants »Most consistent 401(k) participants who were fully invested in TDFs remained fully invested.Amongparticipants who were 100% invested in TDFs at year-end 2016, 85% remained fully invested in TDFs »When moving away from TDFs, participants in their 60s were the most likely to completely exit TDFs.In contrast, when moving away from TDFs, younger participants were more likely to reduce their TDF »When moving away from TDFs, older 401(k) participants typically made larger adjustments to their equityallocations than younger participants.For example, among 401(k) participants in their 60s who movedaway from TDFs, 47% increased their equity allocation by 20% or more and 32% decreased their equity Table of Contents 1Introduction2Background: Rising Use of TDFs3Consistent 401(k) Plan Participants’ Use of TDFs5Ongoing 401(k) Participants Tend To Remain Invested in TDFs6Mid-Tenured 401(k) Participants Are Most Likely To Remain Fully Invested in TDFs8When Moving Away From Full-TDF Investment, Older 401(k) Participants Are Most Likely To Completely Because the annual cross-sections cover individuals with a wide range of participation experiences in 401(k) plans,meaningful analysis of the evolution of TDF investments for individual 401(k) participants must examine their 401(k)plan accounts over multiple years. Drawing from the 2.1 million consistent 401(k) plan participants in the EBRI/ICI Sarah Holden, ICI senior economic adviser; Emily Williams, former ICI senior economist; Steven Bass, ICI assistant director,retirement research; and Craig Copeland, EBRI director of wealth benefits research prepared this report. Suggested citation: Holden, Sarah, Emily Williams, Steven Bass, and Craig Copeland. 2026. “A Closer Look at 401(k) PlanTarget Date Fund Investors’ Account Balance Asset Allocations over Time.”ICI Research Perspective32, no. 6 (May).Available atwww.ici.org/files/2026/per32-06.pdf. For the figures in this report, components may not add to the totals presented because of rounding. Figures A1 through A5are available atwww.ici.org/files/2026/per32-06-data.xlsx. Introduction Target date funds (TDFs) play a central role in the US retirement system as a widespread investment option in401(k) plan lineups and the most common default investment option in 401(k) plans. They offer a professionallymanaged, diversified portfolio that rebalances to become less focused on growth and more focused on income The question then arises, how do 401(k) plan participants actually engage with TDF investments? Morespecifically, do TDF investors tend to remain invested in their TDFs, or do they take advantage of the flexibility Annual snapshots from the EBRI/ICI 401(k) database reveal that a majority of 401(k) plan participantshold TDFs, whether by active choice or accepting them as a default. Investors in TDFs appear to value thehands-off diversification and rebalancing that occur within the TDF. At the same time, some have questioned This paper follows a group of consistent 401(k) plan participants over a six-year period to explore the persistenceor flexibility of their TDF use. By focusing on observed investment behavior over an extended period, this analysisprovides new insight into how TDFs are used in practice. At year-end 2016, 36% of 401(k) plan participants in the Most of the 401(k) participants who were fully invested in TDFs at year-end 2016 remained fully invested inTDFs for many years. Nevertheless, a subset made substantial allocation changes—particularly as participantsapproached retirement—perhaps reflecting a more individualized or personalized asset allocation approach. Taken Background: Rising Use of TDFs TDFs follow a glide path designed to manage a diversified asset allocation, gradually shifting away from a focuson growth toward income over time as the fund approaches and passes its target date.1They have gainedsignificant traction in 401(k) plans, both as default investment options and through 401(k) participant choice. In terms of regulatory developments,2the Pension Protection Act of 2006 (PPA), along with subsequentDepartment of Labor (DOL) regulations, provided legal clarity and fiduciary support for innovations in 401(k) plandesign—particularly around default investment options and automatic enrollment.3More specifically, the PPAdirected the DOL to develop guidelines for diversified default investments (the investment option into which a 401(k) plan design has also evolved significantly over the past few decades with the goal of helping moreworkers save and invest for retirement. Employers (or plan sponsors) have increasingly adopted auto-enrollment5to boost pa