Benefits September 7, 2012

DC Participants’ Plan Balances Take Q2 Dip

September 7, 2012 (PLANSPONSOR.com) - The size of defined contribution (DC) participants’ balances declined in the second quarter of 2012 by more than 2%, according to the Callan DC Index.
Reported by

The 2.09% contraction in balances reflected an average 2.56% market loss, which was marginally offset by 0.47% of contribution inflows from participants and plan sponsors. However, because of a strong first quarter, DC participant balances still experienced positive growth totaling 7.65% in the first half of the year. Since the Index’s inception in early 2006, growth in plan balances have owed as much to net inflows (3.13%) as to return growth (3.14%); demonstrating the importance of robust participant savings levels. 

DC plans significantly underperformed corporate defined benefit (DB) plans in the second quarter, with DC plans down 2.56% (vs. declines of slightly more than 1% for DB plans). On the other hand, DC plans beat the typical 2030 target-date fund (TDF), which was down more than 3% for the quarter.  

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Since the Index’s inception, DB has outperformed DC by nearly 2 percentage points on an annualized basis. Over the same period, DC plans have outperformed the average 2030 TDF by about half a percentage point on an annualized basis. Target-date funds’ higher allocation to equities hampered performance over the period.  

Despite their weak performance, TDFs managed to attract assets in the second quarter, as they have every quarter since the Index’s inception. In fact, six out of every ten dollars that moved within the Index in the second quarter flowed into TDFs. The tendency of these funds to attract assets even in down markets may be a reflection of participant inertia as much as actual confidence in these investments. In most cases, TDFs are the default in DC plans.

Most other DC investments saw net outflows during the quarter, with domestic large-cap, company stock and domestic small- to mid-cap particularly hard hit by outflows. However, turnover—which reflects net transfer activity levels in the DC Index—was modest during the quarter, coming in at 0.43% (about 60% of typical levels). This likely owes to the fact that participants typically do not react strongly to short periods of market weakness.  

Domestic large-cap retains the biggest share of participant assets in the Index (24.3%). This asset class also has the distinction of having experienced quarterly net outflows more often than any other major asset class outside of company stock; with net outflows occurring nearly two-thirds of the time since the Index’s inception. Accordingly, large-cap stock has declined as a proportion of the Index from 32% in 2006 to just below 25%. In contrast, target-date funds have grown to represent 14.4% of overall Index assets (or more than 20% of assets in plans where they are available). Overall equity assets stand at 63.5%, which is slightly down from the first quarter.  

The purpose of the Callan DC Index is to understand the asset allocation, track fund flows and measure the performance of DC plans. The equally weighted index tracks cash flows and performance of nearly 80 plans, representing more than 800,000 DC participants and more than $100 billion in assets. It is updated quarterly and reflects 401(k) plans as well as other types of DC plans.  

Highlights of the index can be accessed at http://www.callan.com/research/dcindex/.
Benefits September 7, 2012

Open Enrollment Experience Makes a Difference for Employees

September 7, 2012 (PLANSPONSOR.com) – A strong relationship still exists between employees' benefits enrollment experience and their perceived value of the benefits employers offer, according to a study from The Guardian Life Insurance Company.
Reported by

The study shows 70% of employees who were able to receive benefits communications in their preferred channels said they were very confident in their benefits selections, versus just 57% of those who did not. Workers who were able to enroll in their preferred channel were also more satisfied with their overall benefits package (70%).   

Guardian’s study, “Benefits & Behavior: Spotlight on the Benefits of an Employee-Centric Enrollment Experience,” finds that benefits communications are a point of contention with both employers and employees. Fewer than four in ten employers (37%) say their benefits communications are very effective in helping employees make the right benefits decisions, and only 34% of employees say that the benefits communications they receive are very effective.   

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

During the enrollment period, workers want to receive their benefits communications through multiple channels. Nearly 20% of employees indicated they would like to receive benefits communications through six or more options. In addition, 80% seek the ease and convenience of being able to sign up for benefits online so they can enroll when and where they choose. Nine in ten workers who are able to enroll online are very satisfied with that experience.  

Complete research findings can be downloaded here.

«