The Markets September 15, 2011

Callan DC Index Falls Behind Average Corporate DB Plan

The Callan DC Index eked out a negligible 0.23% return in the second quarter of the year.
Reported by

This put the Index’s return well behind that of the average corporate defined benefit (DB) plan’s 1.31% gain for the period. Since its 2006 inception, the average corporate DB plan has bested the DC Index by more than 1.5 percentage points annually.

The performance of the DC Index compares more favorably to the average 2030 target-date fund (TDF) over the past five and a half years: 3.68% versus 3.30% respectively on an annualized basis. During the second quarter, however, the average 2030 TDF outperformed the DC Index marginally by 23 basis points.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The average 2030 fund has a higher equity allocation than the plans of the DC Index (78% for the 2030 fund versus 65% for the DC Index); the typical corporate DB plan differs from plans in the DC Index by offering greater diversification into such asset classes as alternatives.

In the five and a half years of the Index’s existence, total annualized growth of participant balances clocks in at 6.95%. Notably, half of this growth comes not from investment gains, but from plan sponsor and participant contributions (net flows)—reinforcing the importance of programs such as automatic contribution escalation, which can increase participant deferral levels, Callan said.

As has been the case in every quarter since the Index’s inception, TDFs once again garnered healthy net inflows. In contrast, domestic large cap equity funds and company stock funds saw large outflows—accounting for 51% and 40% of total outflows respectively for the quarter. Overall, though, Index turnover was light at 0.31%, compared to a historical average of 0.71%.

The share of equities in the DC Index continues to hover at around 65%, as it has done all year. While large cap equity has the largest share of plan assets at 23.5%, this is down materially from its high of 32% at the Index’s inception. The typical plan offers four large cap domestic equity funds (about the same number as in early 2006)—the highest number of funds for any asset class except target date funds. The Index’s overall equity allocation has declined nearly 5.5 percentage points since its inception.

Data & Research September 15, 2011

Despite Slow Economic Recovery, ESOPs Doing Well

A survey of companies with Employee Stock Ownership Plans (ESOPs) found that they continue to have increased share value, better productivity, and overwhelming support among company executives.
Reported by

The Employee Ownership Foundation’s 20th Annual Economic Performance Survey of Employee Stock Ownership Plan companies found that ESOPs have seen positive results over the past year. 

Ninety-two percent of survey respondents reported that creating employee ownership through an ESOP was “a good business decision that has helped the company.”  Nearly three-quarters of respondents (73%) indicated their ESOP positively affected overall productivity of employees.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Both profitability and revenue were up from previous years—68% reported profitability increased and 70% said revenue increased as well.  In terms of stock value, the majority of respondents (80%) stated the company’s stock value increased as determined by outside independent valuations, 17% of the respondents reported a decline in share value, and 3% reported no change.

“In looking at past results, it’s interesting to see performance numbers in a significant reverse of what was reported last year where so many U.S. corporations suffered financially,” said J. Michael Keeling, Employee Ownership Foundation President.  “It would be a shame if the Congressional bipartisan support for our modest national policy encouraging employee ownership was not enhanced as Congress looks for a ‘common’ ground policy encouraging U.S. based jobs.”

The survey asked companies to indicate their performance in 2010 relative to 2009. Sixty-eight percent indicated a better performance, 22% indicated a worse performance, and 11% indicated a nearly identical performance from the previous year. Fifty-eight percent of companies indicated they have created an ESOP education program or ESOP advisory committee since establishing the ESOP.

The 2011 Economic Performance Survey was distributed to more than 1,400 members of The ESOP Association in May 2011.  The results are based on 486 responses – a 35% response rate.

For additional information about the survey, visit The ESOP Association’s Web site at www.esopassociation.org

«