EBRI director: Target date funds better bet right now

It will take investors two to five years to recover from the losses that they have endured in the past year in their 401(k) plans, one industry expert said. Jack Vanderhei, research director with the Washington-based Employee Benefit Research Institute, said that older workers with more money in their 401(k) balances have taken the biggest hit in their portfolios. He spoke today at the Managing Retirement Income Conference of Boston. Predictably, the length of time it will take investors to recover depends on the market returns. However, even when Mr. Vanderhei assumes a 5% rate of return on equities, he said, the average older employee will still need two years to get his or her 401(k) plan assets back to the Jan. 1, 2008, level. For that to occur, investors need to continue the same contributions and same investment strategies. Mr. Vanderhei said that one of the biggest concerns with workers 56 to 65 has been that one in five participants had 90% of their 401(k) balances in equities in 2006 and 2007. "If they had put that money in target date funds they would have been less than 1% better than they actually were." Instead, older workers lost as much as 25% of their account balances last year.