Participants January 16, 2015

2014 Closed With Light DC Plan Trading

DC participant transfers favored equities in December.
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Just 0.022% of total defined contribution (DC) plan assets traded in December 2014, with a slight majority of days (55%) favoring equities over fixed-income assets, Aon Hewitt data shows.

When participants made trades, they were most likely to sell out of premixed funds, small U.S. equity funds and company stock. The asset classes with the most inflows for the month were large U.S. equity, international funds, and balanced funds.

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After incorporating December’s contributions, trades, and market activity, the overall DC participant allocation to equities increased slightly from 66.0% in November to 66.4% in December, according to the Aon Hewitt 401(k) Index. Future contributions to equities decreased marginally month-over-month, from 66.3% to 66.1%.

U.S. equities posted mixed results during the last month of 2014. On the large-cap U.S. equity front, as measured by the S&P 500 Index, returns were negative at -0.3%. Small-cap equities outperformed their large-cap counterparts, with the Russell 2000 Index gaining 2.9% during the month.

The fixed-income market, as measured by the Barclays U.S. Aggregate Index, was flat, returning 0.1%. The MSCI All Country World ex-U.S. Index, a benchmark used to represent companies based in the developed markets outside of the U.S., had a poor showing in December, returning -3.6%.

Even with the low volume of activity in December, Aon Hewitt says the last quarter of 2014 was “easily the heaviest trading quarter of 2014,” featuring 11 of the 24 above-normal trade volume days that occurred during the year. Aon Hewitt defines a “normal” level of relative DC account transfer activity as when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Aon Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. Slightly more than half (52%) of all trading days for 2014 favored fixed-income funds.

The domestic equity markets performed well during the fourth quarter, Aon Hewitt says, as both the S&P 500 Index and the Russell 2000 Index posted positive results, returning 4.9% and 9.7%, respectively. U.S. bonds also posted positive results over the trailing three month period, as the Barclays Aggregate Index gained 1.8%. The MSCI All Country World ex-U.S. Index had a volatile quarter and returned -3.9% during the period.

Additional index results are reported here.
Compliance January 16, 2015

More DB Funding Relief Guidance Issued

The DOL has issued guidance about new DB plan funding notice requirements of the Highway and Transportation Funding Act of 2014.
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A new Field Assistance Bulletin (FAB) from the Department of Labor (DOL) provides guidance about compliance by plan administrators of single-employer defined benefit (DB) plans with the annual funding notice requirements of section 101(f) of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by section 2003 of the Highway and Transportation Funding Act of 2014 (HATFA).

HATFA extends relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average. MAP-21 created a “corridor” of rates on either side of a 25-year average that were permissible for discounting purposes. If the two-year average falls outside this corridor, a company can use the 25-year average that is closest to the two-year average in the corridor. HATFA resets the corridor’s boundaries.

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FAB 2015-01 describes the adjustment of the segment rates under HATFA. It also includes a model annual funding notice and a Q&A about the new rules.

Pending further guidance, the agency said it will treat a plan administrator of a single-employer DB plan as satisfying HATFA if the plan administrator complies with the guidance in FAB 2013-01 and the current FAB and has acted in accordance with a good faith, reasonable interpretation of rules not specifically addressed in those pieces of guidance. The DOL also said it will treat a funding notice for a plan year beginning after December 31, 2012, that was issued before the issuance FAB 2015-01 as satisfying the HATFA rules if it reflects a good faith, reasonable interpretation.

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