AllianceBernstein Says Participants Still Bullish on Target-Dates

Target-date funds have drawn a lot of scrutiny of late, but a new survey suggests that participants still have confidence in the approach. 

In fact, the research by AllianceBernstein claims that 76% of defined contribution plan participants using target-date funds think that these funds provide better performance than a mix of investments they selected on their own would. 

That may serve to explain why 84% of what the study authors characterize as “Actives” (they enjoy making retirement savings and investment decisions and are confident about their retirement prospects) and 88% of so-called “Accidentals” (they don’t enjoy investing, don’t pay much attention to it, and are not confident in their ability to make investment decisions) said they intend to maintain or increase the amount they have invested in target-date funds over the next two years.AllianceBernstein said that “Actives” represented about 38% of the survey participants, while “Accidentals” made up the remaining 62%. 

More than two-thirds of Accidentals feel unsure about investing, and only 7% feel experienced or very experienced, according to the report. As for Actives, despite their labeling, just 39% claimed that they are experienced or very experienced with regard to making investment decisions.Ironically, while target-date funds appeal to both types of investors, AllianceBernstein said that Active investors are more likely to choose them. 

More than a quarter (29%) of Actives currently invest in target-date funds, because they are “easy to understand and will keep them appropriately invested,” according to the report.  That’s betterthough not muchthan the 21% of Accidental investors, who cite target-date funds’ simplicity and the fact that they are professionally managed as the key drivers of their decision to invest in them.  Twenty-nine percent of Actives “strongly agree” that target-date funds provide better performance than if they were to make their own selections, while 18% of Accidentals feel that strongly about target-dates. 

Still Unchanged

One thing hasn’t changed, according to the authors of the fifth annual AllianceBernstein study; the recent market turmoil hasn’t changed participants’ overall attitudes toward investingand that means that most participants still do not feel equipped to make retirement investment decisions in any market—good or bad. 

According to a press release, only 18% of respondents reported being confident or very confident that they’ll have a comfortable retirement—the lowest level reported in the five years the study has been conducted.That stands in sharp contrast to the 41% of respondents who reported being confident or very confident when asked the same question in 2007.

While target-date funds are growing in appeal, many of the survey respondents seem to misunderstand how to use them. Only about one-in-five (19%) of participants have put 80%–100% of their plan assets in a target-date fund – and nearly 60% of those who don’t use a target-date fund as a comprehensive solution state that - they don’t want to put all of their eggs in one basket by allocating 100% of their assets to such a fund.  According to the report, a full half of Actives put less than 40% of their plan assets in target-dates, slightly more than the 47% of Accidentals who make that mistake. 

AllianceBernstein asked nonparticipants if they’d mind being defaulted into a target-date fund – and more than a third (37%) of Active non-participants said they would opt out, as would more than a quarter (28%) of Accidental non-participants.  Among participants, one-in-five Accidentals would opt out, as would 16% of Active participants. 

Guaranteed Appeal?

A majority of both participants and nonparticipants find a guaranteed income target-date fund concept to be strongly appealing, according to AllianceBerstein.  But would they invest in it? Among current target-date users, 69% of Actives and 53% of Accidentals say they’d be likely to invest in a guaranteed income target-date fund, according to the report.  For participants not currently using target-date funds, the likelihood of investing is lower, 43% and 39%, respectively. 

 “This research clearly uncovers the participants’ desire for simplicity and an increased level of confidence when it comes to investing for retirement,” says Cathy Peterson, senior marketing director at AllianceBernstein Defined Contribution Investments (ABDC).  “We believe that both the financial-services industry and plan sponsors can use these findings to improve the investment solutions and communications programs offered through defined contribution plans—all with the goal of helping employees to be well prepared for retirement.” 

AllianceBernstein conducted its fifth annual Web-based survey in March. It included 1,070 full-time employees who were 18 or older. All of the participants worked for companies that offered defined contribution retirement plans, such as 401(k)s.  

“Inside the Minds of Plan Participants” is available at