Participants March 15, 2016

Participants Flocking to Fixed Income in 2016

In both January and February, DC plan participant investment transfers favored fixed income, according to Aon Hewitt.
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As stocks tumbled in January, defined contribution (DC) plan participants were busy making trades, according to the Aon Hewitt 401(k) Index.

January had six days of above-normal trading activity and saw 0.39% of balances traded in the month—well above December’s value of 0.14% and the highest level since January 2013. Participants heavily favored fixed income over equities when they made trades with 82 cents of every dollar traded going from an equity instrument to a fixed income fund. Additionally, 14 out of 19 (74%) of the trading days showed more inflows to fixed income.

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GIC/stable value funds, Bond funds, and Money Market funds saw the most inflows at $348 million, $172 million and $106 million, respectively. The most trading outflows were in target-date funds ($251 million), Large U.S. Equity funds ($145 million) and Small U.S. Equity funds ($58 million).

After reflecting contributions, trades, and market activity in participants’ accounts, the percentage in equities decreased to 64.1% at the end of January, down from 65.4% at the end of December. Despite the movement of current balances to more conservative investments, participants were still keen on investing new money in stocks, as contributions to equities increased to 66.3% from 63.7% in December.

NEXT: February a lighter trading month

February was a slow trading month for 401(k) plan participants with a daily trading average of 0.024% of balances—down from 0.034% in January. There was one day of above-normal trading activity.

However, when participants traded, most inflows were into fixed-income funds, just as in January.

In February, Bond funds took in $191 million of DC participants’ assets, while GIC/stable value funds and Money Market funds saw inflows of $91 million and $29 million, respectively. Target-date funds lost $97 million in participants’ assets, while company stock funds and Large U.S. Equity funds posted outflows of $85 million and $66 million, respectively.

After combining contributions, trades, and market activity in participants’ accounts, the percentage in equities was 64.0% at the end of February, down slightly from 64.1% at the end of January. New contributions still favor stocks, but the contributions to equities decreased slightly from 66.3% in January to 65.9% at the end of February.

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Products March 15, 2016

New Firm Provides Fee Benchmarking and Adviser Searches

Ted Benna, an industry veteran since the start of 401(k) plans, says the new DOL fiduciary rule will make it even more important for retirement plan sponsors to benchmark fees.
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A new firm, 401kBenna, LLC, will provide unbiased retirement plan adviser and total fee benchmarking for retirement plan sponsors, as well as help with conducting adviser searches, with the help of Retirement Playbook.

While plan sponsors have always been required by the Employee Retirement Income Security Act (ERISA) to make sure plan fees, including those paid to plan advisers are reasonable, Ted Benna, CEO of 401kBenna tells PLANSPONSOR the upcoming fiduciary rule from the Department of Labor (DOL) is a game changer. “These regulations will make financial advisers who provide services to 401(k)s fiduciaries for the first time,”Benna said in a statement. “Among other things, these regulations will prevent advisers from receiving compensation from the mutual funds and service providers they recommend to employers.”

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Benna adds, “Every plan sponsor should obtain an independent, unbiased confirmation that the adviser fees for its plan are competitive. If they aren’t, the plan sponsor should negotiate lower fees and /or seek a new financial adviser with or without professional assistance.”

For this reason, 401kBenna provides the following services:

  • Determine whether current adviser’s fees are reasonable ($5,000 fee);
  • Determine whether all plan fees are reasonable (fees range from $5,000 to $10,000); and
  • Provide resources to help plan sponsors conduct an adviser search (fees range from $10,000 to $20,000).

Benna tells PLANSPONSOR the Benna team will do the fee analysis for both the adviser’s role and for other service providers. Adviser searches will be contracted out to Retirement Playbook. He says Trisha Brambley, president of Retirement Playbook, Inc. and a former member of the DOL’s ERISA Advisory Council, is a trusted long-time associate with five-plus years of experience doing adviser searches “and is very good at it.”

More information is available at www.401kbenna.com.

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