The Markets March 10, 2010

DC Participants Sought More Risk in 2009

Throughout much of the 2009 market rally, activity as measured by fund flows within the Callan DC Index, was above average as participants sought to increase their exposure to risky assets.
Reported by

Nearly 5% of money flowed out of stable value funds in 2009, compared to inflows of nearly 17% in 2008, Callan said. In the fourth quarter, money continued to flow into most equity funds and out of capital preservation vehicles such as stable-value and money-market funds. However, the pace of turnover for the quarter declined to 0.57% (below the historical average).

Target date funds were a major recipient of inflows during the fourth quarter, and have seen inflows every quarter since the Index’s inception—including throughout the market collapse, Callan noted.

Target date funds account for more than 10% of DC assets and are represented in 75% of DC plans. For plans with target-date funds, target-date assets average 19% of the total.

Stable-value funds account for 16% of assets, down from more than 18% going into 2009. However, despite positive flows and the market rally, the Index’s equity exposure has not returned to pre-market collapse levels. The average plan has about 63% in equities, down from a high of 70.5% in December 2007.

The average DC plan rose 22.22% in 2009, helping to offset the 28.5% decline in 2008, according to Callan.

The index’s recent strong performance means that DC participants are in the black for the first time since the third quarter of 2008. Going into 2009, the value of DC Index assets had shrunk by 2.16% on an annualized basis since inception, despite an annualized contribution rate by plan sponsors and participants of 3.06% during that same period, according to Callan. By the end of 2009, balances of participants in the Index experienced a growth rate of 4.34%.

However, Callan said much of this increase (3.33%) comes from contributions, with only 1% attributable to actual total return.

The Callan DC Index is available here.

The Markets March 10, 2010

Transferring Participants Have a Fixed Sense in February

For a change, 401(k) participants who realigned their balances didn’t seem to be tracking the market.
Reported by

Despite the positive stock market performance during the month, participants inclined to transfer demonstrated a strong disposition toward fixed-income options, according to the results of the Hewitt 401(k) Index.  Approximately $285 million moved from equities to fixed-income investments during the month, and 70% of the days during the trading-shortened (19 trading days) month experienced fixed income-oriented transfers. 

Hewitt noted that both GIC/stable value funds and bond funds received large inflows during the month; the former category pulling nearly half (47%) of the inflows, with $148 million transferring into this asset class. Bond funds received net transfers of $116 million, 37% of the inflows.

In contrast, both large U.S. equity and international funds had outflows of $110 million, followed by company stock ($39 million) and emerging market funds ($24 million).

On average, just 0.04% of balances transferred on a net daily basis in February, though there were only two above normal1-levels of transfer activity—and that on two consecutive days during the month (February 5 and 8)—directly following a substantial market drop.  On those days, trading was approximately twice and one-and-a-half times the normal transfer volumes.

Allocation Assets

Despite those moves—and doubtless aided by the market’s rebound—participants’ overall allocation to equity investments was 58.1% at the end of February, marginally higher than the 57.8% at the end of January (see “Market Continues to Move Participants”). That said, stable value continued to be the single largest holding, representing 26.3% of the overall portfolio. Other significant allocations included:      

  • 17.16%—large U.S. equity
  • 14.51%—company stock
  • 11.46%a—lifestyle/premix
  • 6.87%—international
  • 5.94%—bond
  • 5.37%—balanced.

In terms of the way participants allocated their discretionary contributions (participant only-contributions), the allocation to equity funds was 60.0% in February, which represented a slight decrease of 0.4% from the previous month.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

(1) According to Hewitt, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds 2 times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.


«