Investing June 12, 2019

401(k) Participant Transfers Increase in May

Falling equity returns accelerated the trend this year of participants moving into fixed income investments, according to Alight Solutions.

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With large U.S. equities declining by 6.4% in May, 401(k) investors took to making the highest exchanges in their portfolios so far this year, 0.21% of their balances, according to the Alight Solutions 401(k) Index. Additionally, there were three days of above-normal trading activity.

Year-to-date, 401(k) investors have transferred an average of 0.87% of their balances. In May, they favored fixed income over equities, with 17 (77%) of the trading days moving the majority of assets to fixed income and only five days (23%) favoring equities. This continues a trend for 2019; year-to-date, 401(k) investors have moved into fixed income on 87% of the trading days and into equities on only 13% of the days.

Asset classes with the most trading inflows were bond funds (taking in 57% of the inflows, for a total value of $255 million), stable value funds (21%, $94 million) and money market funds (15%, $67 million).

Asset classes with the most trading outflows in May were large U.S. equity funds (63%, $283 million), target-date funds (14%, $65 million) and mid U.S. equity funds (9%, $40 million).

Asset classes with the largest percentage of total balances at the end of May were target-date funds (29%, $57.7 billion), large U.S. equity funds (25%, $50.2 billion) and stable value funds (11%, $21.0 billion).

Asset classes with the most contributions in May were target-date funds (47%, $594 million), large U.S. equity funds (20%, $254 million) and international funds (7%, $90 million).

U.S. bonds were up 1.8% in the month, small U.S. equities were down 7.8%, large U.S. equities gave up 6.5%, and international equities were down 5.4%.

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Data and Research June 12, 2019

Study Finds Benefits of ESOPs for Employees and Employers

Among other things, workers with employee ownership experienced layoffs six times less often than those without, and employee turnover can be three times lower in employee-owned companies, according to the study.

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A survey of 1,500 working Americans conducted by the Rutgers Institute for the Study of Employee Ownership and Profit Sharing and funded by the Employee Ownership Foundation (EOF) found 72% want to work for a company owned by employees.

The study pointed to the benefits of employee stock ownership plans (ESOPs) for employees. Workers with employee ownership experienced layoffs six times less often than those without employee ownership last year. In addition, employee owners had more bonuses over 9% of their pay.

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Previous research found workers in employee-owned companies also have more retirement savings, more training and involvement in the business and more profit and gain sharing.

Employee ownership also helps businesses. The survey found that when choosing between two similar jobs, 61% of respondents said they would take the job that offered them employee ownership. In addition, employee turnover can be three times lower in employee-owned companies.

Thirty-eight percent of respondents said they are more likely to buy from businesses that are employee-owned than from those that are not.

Preference for employee-owned companies transcend ideological and partisan divides, with 74% of Democrats, 72% of Republicans, and 67% of Independents voicing a preference for employee ownership. The ESOP Foundation says this finding aligns with the bipartisan support for the Main Street Employee Ownership Act, signed into law last August.

Among other things, the legislation focuses on increasing the role of the Small Business Administration (SBA) in facilitating ESOPs by allowing the SBA to make loans to companies that they can then re-loan to ESOPs. It also allows ESOP loans to be made under the SBA’s preferred lender program and updates the definition of ESOPs so that they do not have to have full voting rights to qualify.

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