Investors Believe Target-Date Funds Performed Better Than a 'Do-It-Yourself' Approach

NEW YORK, NY, October 14, 2009 -- With target-date funds under close scrutiny this year as a result of the recent market crisis, new research from AllianceBernstein reveals 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. Furthermore, the fifth annual study confirms that the recent global recession hasn't changed participants' overall attitudes toward investing. In fact, the majority of participants do not feel equipped to make retirement investment decisions in any market -- good or bad.

In a recently published white paper titled "Inside the Minds of Plan Participants," AllianceBernstein details the results of this research study of more than 1,000 workers whose companies offer defined contribution plans. Conducted in March 2009, when the market was at the lowest point in recent months, the study takes a comprehensive look at overall attitudes toward investing for retirement; whether target-date funds have maintained their appeal with investors; and how investors view target-date funds with a built-in, guaranteed income stream.

"Given the recent focus on target-date funds in light of the market crisis of 2008, we looked carefully at how participants view these funds and what features they feel are important for reaching their retirement goals," says Richard A. Davies, head of product strategy for AllianceBernstein Defined Contribution Investments (ABDC). "Eighty-six percent of all target-date users told us that they plan to maintain or increase their current level of investment in target-date funds, which demonstrates that these investors are generally satisfied."

As a result of the recent bear market, participants are carefully reconsidering how they will meet their retirement goals. To that end, our research shows that more than 75% of participants think a guaranteed income stream is the most important feature to have in a retirement investment product.

"This year's study also demonstrates that regardless of the market environment, the majority of respondents still lack confidence in their overall ability to make good investment decisions," says Cathy Peterson, senior marketing director at ABDC. "We think that the simplicity of target-date funds, coupled with a guaranteed-income feature, will go a long way toward helping participants attain a financially comfortable retirement."

Key research findings include:

• Workers' confidence that they'll have a comfortable retirement plunged this year.

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. As a point of comparison, 41% of respondents reported being confident or very confident when asked the same question in 2007.

• Our research continued to track two distinct groups of workers with very different attitudes toward investing. Most want control, but lack experience in making investment decisions.

When asked to describe how they feel about investing, 38% of respondents would be categorized as "Active" investors: they enjoy making retirement savings and investment decisions and are confident about their retirement prospects. Sixty-two percent of respondents are what we call "Accidental" investors: they don't enjoy investing, don't pay much attention to it and are not confident in their ability to make investment decisions. This percentage breakdown has been remarkably consistent over the five years we've been conducting this study.

Whether Active or Accidental, most investors lack experience in making investment decisions. More than two-thirds of Accidentals feel unsure about investing, and only 7% feel experienced or very experienced. For Actives, surprisingly, only 39% state they're experienced or very experienced with regard to making investment decisions.

• While target-date funds appeal to both types of investors, Active investors are more likely to choose them. More than 85% of target-date fund investors say they intend to maintain or increase the amount they invest in target-date funds.

Twenty-nine percent of Actives currently invest in target-date funds; key reasons for their selection being that they are easy to understand and will keep them appropriately invested throughout retirement. This is in comparison to 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.

In addition, 84% of Actives and 88% of Accidentals say they intend to maintain or increase the amount they invest in target-date funds over the next two years.

While target-date funds are growing in appeal, many respondents seem to misunderstand how to use them. Only 19% of participants have put 80%-100% of their plan assets in a target-date fund. Almost 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. Clearly, many investors do not understand that target-date funds are fully diversified.

• Investors show great interest in target-date funds with a built-in, guaranteed stream of income.

Given the recent market crisis, it's not surprising that among current target-date fund investors, 69% of Actives and 53% of Accidentals said that they'd be likely to invest in a target-date fund with a guaranteed-income feature when such a fund was described to them.

In addition, when asked how they would feel if their company automatically enrolled them in a guaranteed-income target-date fund, the majority reported that they would leave all or some of their money in that option.

"This research clearly uncovers the participants' desire for simplicity and an increased level of confidence when it comes to investing for retirement," says Ms. Peterson. "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."

ABDC is a business unit of AllianceBernstein that offers a full range of solutions to meet the needs of defined contribution plan sponsors and participants. For a copy of "Inside the Minds of Plan Participants" or for more information on ABDC, please go to www.abdc.com.

Survey Background

AllianceBernstein conducted its fifth annual web-based survey in March 2009. 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 401ks.

About AllianceBernstein

AllianceBernstein is a leading global investment management firm that offers high-quality research and diversified investment services to institutional clients, individuals and private clients in major markets around the world. AllianceBernstein employs more than 500 investment professionals with expertise in growth equities, value equities, fixed income securities, blend strategies, and alternative investments and, through its subsidiaries and joint ventures, operates in more than 20 countries. AllianceBernstein's research disciplines include fundamental research, quantitative research, economic research and currency forecasting capabilities. Through its integrated global platform, AllianceBernstein is well-positioned to tailor investment solutions for its clients. AllianceBernstein also offers independent research, portfolio strategy and brokerage-related services to institutional investors.

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