Although some insurance company executives say they are now using analytics, others say they’re still on the fence about it or only beginning to explore its possibilities.
By Cyril Tuohy
Data released by MassMutual’s Retirement Services Division reveal that women and young investors like target date funds and other allocation strategies in their employer-sponsored defined contribution retirement plans.
In the first quarter, 26.9 percent of all assets in defined contribution plans managed by MassMutual were invested in asset allocation accounts. It is the highest asset level in allocation accounts ever tracked by the company, the company said.
The company also said that in the first quarter, 28.4 percent of women’s assets were in asset allocation accounts, an increase of 42 percent over the past five years.
In the first quarter, men allocated 27.7 percent of their assets to allocation accounts, up 38 percent over the past five years.
“We attribute the growth in popularity to more employers offering target date funds to meet a growing demand,” Elaine Sarsynski, executive vice president of MassMutual’s Retirement Services Division, said in a news release.
MassMutual serves more than 2.87 million retirement plan participants.
The company also reported that target date funds were popular among Generation Y workers. In the first quarter, 52.1 percent of Gen Y retirement assets were in allocation accounts, up 3.3 percent from the year-ago period.
Target date funds automatically rebalance assets depending on the year a worker plans to leave the workforce. The funds are an easy way for workers to put their investment on autopilot instead of having to select individual funds to meet a desired allocation.
An employee retiring in 2054 after 40 years of work would steer 401(k) payroll deductions to the Target Date 2054 Fund, for example. The fund would be heavily weighted to stocks since the employee has a long investment horizon.
In time, the fund would automatically move some assets into bonds so that by 2040, for instance, 60 percent of assets were allocated to stocks and 40 percent to bonds.
The popularity of target date funds has attracted the attention of the Securities and Exchange Commission (SEC), which issued an investor bulletin advising investors on how to approach these kinds of investments.
Employees should look to the fund’s investment mix and not rely on the target retirement date, the SEC said.
“Some target date funds don’t reach their most conservative investment mix until 20 or 30 years after the target date,” the SEC said.
Workers also need to be wary of fees.
Some target date funds invest in other mutual funds, thereby becoming a fund of funds. The strategy can generate two separate fees, one fee from the funds that the target date fund invests in and another fee from the target date fund itself.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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