TDFs Affect Retirement Plan Participant Trading Activity

According to the Aon Hewitt 401(k) Index, 2015 was the lightest trading year on record for participants in defined contribution (DC) plans.

Overall, 1.52% of balances were transferred in 2015—well below the historical average of 2.88%. There were 39 days of above-normal daily transfer activity in 2015. The number of above-normal days in 2015 (39) is in line with the average number of above-normal days over the past five years (35) and past 10 years (35), Aon Hewitt says.

Part of the light trading activity can be explained by the prevalence of target-date funds (TDFs), which are now the largest asset class in the 401(k) Index. As of year-end 2015, target-date funds represented 23.1% of total assets, slightly edging out Large U.S. Equity (22.7%).

When participants made trades, they tended to favor fixed income funds over equity instruments. The number of fixed income-oriented days was 139, compared to 109 for equity-oriented days. GIC/stable value funds received the most inflows (41%) while the majority of outflows came from TDFs (37%) and company stock (30%).

However, TDFs received the most contributions in 2015 (42% or $498 million).

After reflecting contributions, trades, fund changes, and market activity, participants ended the year with 65.4% in equities—a decrease from 66.4% of assets invested in equities at the end of 2014.

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