Investment option workers aren’t scared to commit to

Looking for some proven ways to make sure employees’ 401(k) participation remains steady? Make sure your plan includes this option.

The investment option you want to be sure your plan includes: Target-date funds.

There’s some powerful evidence out there that says employees who invest in target-date funds are more likely to stick with them – despite drastic changes in the market.

Target-date funds are a mixed category of mutual funds that automatically reset an investor’s asset mix – stocks, bonds, cash equivalents – based on the time period that investor selects.

Example: A 401(k) investor may select 2040 as a target date for retirement.

In uncertain times like these, this strategy helps encourage nervous employees to sit tight and avoid acting out of fear.

In fact, a recent study by the Employee Benefit Research Institute found that a little over 90% of the 401(k) participants who started investing in target date funds back in 2007 have kept that investment through 2009.

Employers may want to use this investment option as a selling point to bolster participation among employees who have the longest time to wait until retirement – twentysomethings.

While these workers may not be too concerned about retirement at this stage in their lives, the EBRI research shows if you can get them to select this investment option, they’re more likely to stay the course.

It doesn’t hurt to remind workers (or have your provider remind them) that their target date doesn’t have to be the date they plan on retiring.

Also, employees can alter their target dates based on their risk levels. Example: An employee who plans to retire in 2035 but wants to be more aggressive in his plan’s investments can use 2045 as a target date.