Do you have a feeling that the stock markets continuous up and down is making your 401(k) investors seasick? Are employees taking time off to buy mattresses, as in mattresses under which they store their money? In all seriousness, if youre thinking that participants may be backing off their investments, its probably time to add another option to your plan. Have you considered target-date funds?

Target-date funds are relatively new to the retirement scene. Target-date funds also known as lifecycle or age-based funds are a type of mutual fund designed to provide a simple investment solution through a portfolio whose asset mix becomes more conservative as the target date (usually retirement) approaches. They work well for retaining those employees already saving for retirement as well as those employees who are new to saving for retirement.

One of the reasons that target-date funds are so attractive is that they take the confusion out of retirement savings for employees. Participants simply pick the year they plan to retire, and the fund automatically adjusts the asset mix (stocks, bonds, cash equivalents) as necessary. As participants retirement dates draw near, target-date funds become more conservative. Target-date funds are the autopilot of retirement saving.

In It for the Long Haul

Whats in it for the sponsors of target-date funds? Participants who invest in target-date funds overwhelmingly tend to stick with these investments for the long haul. Findings from an Employee Benefits Research Institute (EBRI) August 2011 report back up the fact:

• 97.2% of participants who were auto-enrollees in target-date funds in 2007 were still using the funds in 2008
• 95.7% of 2008 auto-enrollees remained invested in target-date through 2009, and
• 90% of participants who were not auto-enrollees but still invested in target-date funds in 2007 remained invested in the funds by 2009.

One More Thing

An important thing to remember with target-date funds: if participants want their investments to be invested more or less aggressively, they can alter their retirement date. For example: A participant who plans to retire in 2030 wants to invest more aggressively than what the standard plan does. He resets his target date at 2040, giving him more years to put his savings in riskier investments such as stocks. A participant who wants to be less aggressive can set an earlier retirement date.

Take some time to review target-date funds. Your employees will thank you!