Investing August 9, 2004

Hewitt: July Sees Light K Plan Transfers

August 9, 2004 (PLANSPONSOR.com)—A weak stock market sent some 401(k) participants looking for cover in July with fairly light transfer activity.
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Transfer activity among 401(k) participants, although slightly heavier than June (See Hewitt: K Plan Transfers Inert in June ), was still far lighter than the historical average daily net transfer activity of 0.07%; in July participants transferred just 0.04% of their balances.

Transfer activity did increase slightly on July 23 and 26 when the Dow Jones Industrial Average dropped below the 10,000 mark, but still only matched the average level of 0.07% or 0.08% of participant balances.

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Participants’ activity this month favored fixed-income, reflecting net transfers in that direction on 67% (14) of the trading days during the month, compared to only seven days in July on which transfers favored equities.

The benchmarks almost all posted negative returns in July.   The worst return was the NASDAQ (-7.83%), followed by the Russell 2000 (-6.73%), S&P 500 (-3.31%), MSCI EAFE (-3.25%), and Dow Jones (-2.69%).   The single positive return was posted by the Lehman Aggregate (0.99%).

Examining monthly transfer/cash flow data for the month on the whole, Hewitt found most inflows were directed into GIC/Stable Value (45.94%), followed by:

  • bond funds (29.64%)
  • company stock (12.26%) and 
  • money market funds (12.16%).

Leading the outflows were large US equity funds, which constituted nearly 39% of the outflows, followed by:

  • small US equity funds (-23.92%)
  • self-directed window (-8.89%)
  • lifestyle/pre-mix funds (-8.53%), and
  • midUS e quity (-6.44%).

At the end of July, equity investments represented about 64% of overall plan allocations, the lowest equity level since late last year, Hewitt said.

More information and Hewitt’s data can be found at http://was4.hewitt.com/hewitt/services/401k/observ/04_july.htm .

Administration August 8, 2004

FASB: New Pension Reporting Rules to Hit by YE 2003

August 20, 2003 (PLANSPONSOR.com) - By year-end, companies will have to change their pension plan financial reporting process in an attempt to give investors a clearer view of how the firm's pension plan is impacting its fiscal health.
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The Financial Accounting Standards Board (FASB), the nation’s accounting rule maker, made the tentative decision at a Wednesday meeting for companies with traditional retirement plans to adopt pending new reporting rules, Dow Jones reported.

Board members decided not to go forward with an earlier plan to ask companies to specify where their pension costs are generated. But they stuck to the rest of their planned initiatives, including one that would require companies to tell what percentage of stocks, bonds, and other asset classes they hold in the pension plan.

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FASB is writing the appropriate rules and says it will publish a draft within weeks for public comment. The group hopes to finalize the rules and adopt them officially soon after that. As a result, companies will have only a brief period to digest the regulations and put them into action.

The group is revamping pension accounting rules because of concerns that the current regulations – dating back to the mid-1980s – don’t produce a true corporate financial picture. The sustained bear market and low interest rates have caused many DB plans to suffer often-sizable funding shortfalls (see  America’s Pension Crisis ).

Existing FASB pension reporting rules require companies to provide investors with financial data on pensions only once a year. As part of the new rules, FASB will propose quarterly reporting on some aspects of the plans, including how much a company estimates it will contribute (See  FASB Tightens Pension Reporting Noose ).

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