Data & Research December 16, 2010

Flight to Equities in 401(k)s Continues in November

With mixed November market results, 401(k) participants continued to transfer funds from fixed income investments into equities, according to the latest data from the Aon Hewitt 401(k) Index.
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An Aon Hewitt news release said a total of $217 million moved from fixed income funds into diversified equity investments (equity excluding company stock) during the month, which represented 0.19% of total assets. Seventy-six percent of trading days saw equity-oriented transfers during the month.

All fixed income asset classes had net outflows during the month. Bond funds experienced (net) outflows of $89 million while GIC/stable value funds had $49 million in outflows, Aon Hewitt reported. A sum of $12 million was also shifted out of money market funds. Further, company stock funds experienced the largest outflows of the month, with $110 million moving out of this asset class, which continued the outflow trend of the past several years.

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According to the news release, lifestyle/premixed funds received the largest asset boost during the month, with $100 million transferring into this asset class. In addition, all domestic equity asset classes enjoyed modest inflows. Small U.S. equity funds rallied during November, and also received $65 million in net transfers. Large U.S. equity markets were relatively flat, but received $55 million in inflows.

Slight Uptick in Equity Holdings  

In terms of portfolio allocations, Aon Hewitt said total equity holdings were up slightly from 58.3% at the end of October to 58.9% at the end of November. Also, overall, participants’ sentiment toward the stock market did not appear to change much in November, as employee equity contributions remained similar to last month at 60.9%.

Data & Research December 16, 2010

High School Grads Worse Off in Retirement Prep

Sixty percent of workers who only have a high school diploma report being offered a 401(k) or similar plan by their employer, compared to 78% of workers with a college degree and 83% with post graduate education.
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A Transamerica news release about its new study of the effects of educational level on one’s retirement confidence and readiness said of workers with access to a plan, those with only a high school education have a lower participation rate (63%) than those with some form of higher education (84% with a college degree, and 87% with at least some post graduate education). Those with only a high school education also contribute a smaller percentage of their pay (5% median) compared to those with a college degree (8% median).

According to Transamerica, workers with lower levels of educational attainment are also significantly less confident in their ability to fully retire with a comfortable lifestyle. Just 40% of high school graduates without any college education are confident in their ability to retire, compared to 53% of college graduates and 64% who have pursued a post graduate education.

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While most workers agree that they could work until age 65 and not save enough to meet their retirement needs, three-quarters of high school graduates with no college education agree with this sentiment compared to just over 60% of college graduates. Additionally, nearly half of high school graduates without any college education (48%) plan to work past age 70 or not retire at all.

When American workers reach their retirement date, more than half with a college degree expect their 401(k), 403(b), and IRAs to be their primary source of income in retirement – compared to over one-third of workers with only a high school diploma who expect to rely on Social Security, the news release said.

Nearly one-third of those with only a high school diploma cite that they do not rely on any source of information for retirement planning and investing—the most common response among that demographic. By comparison, those with a college degree more frequently rely on a wider range of available resources like financial Web sites (42%), financial planners or brokers (33%), and newspapers and magazines (27%).

The 11th Annual Transamerica Retirement Survey was conducted among nearly 3,600 American workers. The report is at http://www.transamericacenter.org/resources/TCRS11thEducationalMattersFinal.pdf. 

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