Skip to content

WINDSOR, Conn., Nov. 14, 2012 — In 2010, 7 in 10 401(k) plans offered target-date funds (TDFs) within their employer-sponsored retirement plans and more than a third (36 percent) of 401(k) participants invested in TDFs1. Yet a recent LIMRA survey found only 16 percent of consumers said they were familiar with TDFs.

"In 2007, the Department of Labor included TDFs as one of the three qualified default investment alternatives, resulting in tremendous growth of target-date fund assets, which reached $466 billion in the third quarter 20122," said Cecilia Shiner, senior analyst, LIMRA Retirement Research. "Despite the enormous popularity of TDFs, our study revealed that few consumers understand them, and the majority is unaware if TDFs are available in their employer-sponsored retirement plans."

LIMRA's survey found that fewer women were likely to say they were familiar with TDFs as men (10 percent vs. 22 percent). Consumers under 50 and those with household incomes of $100,000 or more were the most likely to be familiar with TDFs (20 percent and 30 percent, respectively).

LIMRA also wanted to determine the level of knowledge consumers had about TDFs. "Many consumers were uninformed or misinformed about the basics features of TDFs," noted Shiner. "Before the industry can successfully explain the intricacies of these funds, and how they differ by investment provider, consumers need some back-to-basics education."

Based on LIMRA's survey, it became clear that consumers understood few of the principal features of TDFs. While more than half of consumers understood that TDFs become more conservative over time and provide a diversified mix of stocks and bonds, 1 in 10 consumers believed that TDFs included guarantees, become risk free at retirement or require income to be drawn at the target year - none of which are typical features of TDFs. Interestingly, even though IRA owners in general were more likely to claim to be familiar with TDFs than defined contribution (DC) plan participants (42 percent vs. 37 percent), their actual knowledge is similar to that of DC participants.

LIMRA found that consumers who have invested in TDFs are far more confident than those who don't own TDFs that they will be able to live the retirement life style they want (62 percent vs. 37 percent). However, this confidence may reflect consumers' self-identified knowledge level. Three quarters of TDF owners report being somewhat or very knowledgeable about investments or financial products, compared to just 42 percent of non-owners.

"It is estimated that 80 percent of DC assets will be held in TDFs by 2020," noted Alison Salka, corporate vice president and director LIMRA Research. "TDFs offer the advantages of simplicity and diversification; consumers who understand how these work are going to be more comfortable with their investments and more confident about their retirement prospects."

The findings are based on 3,531 consumers who were age 18 to 84, involved in household financial decision-making, currently working for pay, retired, or recently unemployed, and randomly assigned to answer questions on TDFs. The survey was fielded in May, 2012.

-end-

 

About LIMRA LIMRA, a worldwide research, consulting and professional development organization, is the trusted source of industry knowledge, helping more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com

1 ICI Research Perspective: 401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2010
2 Ibbotson Target Maturity Report 3Q 2012

Media Contacts

Catherine Theroux

Director, Public Relations

Work Phone: (860) 285-7787

Mobile Phone: (703) 447-3257

ctheroux@limra.com

Brooke Lacey

Public Relations Specialist

Work Phone: (860) 298-3920

Mobile Phone: (413) 530-6184

blacey@limra.com