The MarketsDecember 6, 2010

DC Plans Have 8.4% Q3 Showing

Plans in the Callan DC Index recovered lost ground in the third quarter, returning 8.4% on average.

Reported by PLANADVISER staff

A Callan news release said that participants continued to shift assets away from equity and into fixed income funds. Also, despite third quarter market strength, the average DC plan has returned only 1.8% annually since inception, Callan pointed out.

Nearly two-thirds (3.22%) of the 5.03% annual growth experienced by DC plans since the beginning of 2006 comes not from the market but from participant and plan sponsor contributions, Callan said.

Callan said third-quarter turnover within the Callan DC Index was in line with historical averages at 0.68% of balances. When money was transferred, it flowed out of many equity asset classes and into fixed income. Domestic large cap equity and domestic small/mid cap equity funds were hardest hit, accounting for 35% and 25% of all outflows, respectively.

However, equity outflows also encompassed international equity and company stock funds. Inflows centered heavily on domestic fixed income: nearly half of all inflows were directed to this asset class. In contrast, flows into bothstable value and money market funds were quite modest.

T-D Flows Slow

As has been the case throughout the Index’s history, money flowed into target-date funds on a net basis last quarter, albeit at a slower pace that in recent quarters. In the first and second quarter of 2010, target-date fund funds accounted for nearly 50% of total inflows, yet last quarter, they barely accounted a quarter of inflows, Callan said.

Meanwhile, the overall proportion of equity fund assets within the Callan DC Index stands at 62.5%, well below its peak of 71% at the end of 2007. Since the Index’s inception, domestic large cap equity funds have gone from accounting for nearly a third of the typical DC plan’s assets to less than a quarter.

The proportion of domestic fixed income assets has nearly doubled from 5.4% to 10.1%. While target-date funds account for 10.6% of total DC Index assets, they account for nearly 18% when offered in a plan. At the end of the 3rd quarter, 76% of plans offered a target-date fund.