401(k) plan sponsors and participants seem to be figuring this whole retirement thing out, but is it too little, too late?
Case in point—despite increased volatility, Aon Hewitt finds that 2015 was the lightest trading year on record for participants in defined contribution plans. And after a frenzied beginning to 2016, 401(k) trading activity once again calmed in keeping with the overall trend.
The reason? No surprise, it’s in part due to the prevalence of target-date funds, which are now the largest asset class in the 401(k) Index. As of year-end 2015, target-date funds represented 23.1 percent of total assets, slightly edging out Large U.S. Equity at 22.7 percent.
For the full year 2015, 1.52 percent of balances were transferred—well below the historical average of 2.88 percent. There were 39 days of above-normal daily transfer activity, which is in line with the average number of above-normal days over the past 5 years (35) and past 10 years (35).
When participants made trades, they tended to favor fixed income funds over equity instruments. Stable value funds received the most inflows while the majority of outflows came from target-date funds and company stock.
Aon concludes by comparing the weak relative returns experienced by Wall Street. The Barclays Aggregate Index gained 0.6 percent, while the S&P 500 Index gained 1.4 percent. The Russell 2000 Index returns were negative 4.4 percent for the year, and the non-U.S. equities lagged as well with the MSCI All Country World ex-U.S. Index posting negative 5.7 percent returns.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
