Investing April 3, 2003

Market Rebound Draws Q4 SDBA Flows

April 3, 2003 (PLANSPONSOR.com) - Resurgent markets drew participant holdings in self-directed accounts to equity holdings in the fourth quarter, according to Charles Schwab Corporate Services' fourth quarter 2002 SDBA Indicators report.
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Nearly half (49%) of net asset flows went to large and small cap equity funds in the quarter, a sharp turnaround from the third quarter, where those sectors suffered a net 29% outflow, according to Schwab (see  New SDBA Money Seeks Shelter in Q3 ).   Equity markets performed well in October and November, boosting major US stock indices to overall gains in the fourth quarter.   The NASDAQ was 13.94% higher than its September 30 close, while the Dow was 9.87% higher, and the S&P 500 was up 7.92%.

Mutual Attractions

Still, at quarter-end self-directed brokerage account (SDBA) participants held more than a third (35%) of their total SDBA assets in cash and equivalents and fixed income securities.   Participants confined most of the investments within the SDBA account to mutual funds, which continued to represent nearly half (43%) of total account balances.   According to Schwab, equity holdings equaled 22%, up 1% from the third quarter, while cash and equivalents were down 1% from the prior quarter, and now represent 28%.   Fixed income holdings were unchanged at 7%.

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Taxable bond holdings were hammered during the quarter, suffering a 16.4% net outflow, the first net outflow for the category in the one-year history of the Schwab indicators.   The PIMCO Total Return Bond Institutional Fund dropped from a 4.2% share of all Personal Choice Retirement Account balances to 1.6% in the fourth quarter.

Trading Places

Trading remained quiet overall, with an average of just 2.0 trades during the fourth quarter, compared with 2.1 trades the quarter before.

Participants who chose to invest in and SDBA did so with gusto, as they put nearly two-thirds (63%) of their total 401(k) account balance in the option, according to Schwab.   The average age of a PCRA account holder was 46, and the average account balance totaled $54,047, according to Schwab.   Of PCRA holders, 25% were aged 30-39, 36% 40-49 and 26% were in the 50-59 bracket.   Just 3.6% were under age 30, while only about 8% were older than 60.

The SDBA Indicators report profiles the investment behavior of approximately 60,000 401(k) plan participants investing through Schwab’s self-directed brokerage account, the Schwab Personal Choice Retirement Account® (PCRA). SDBAs are brokerage accounts within 401(k) plans that provide participants access to investments (stocks, mutual funds, fixed income securities) outside of their plan’s core fund offerings. Schwab publishes the SDBA Indicators to provide the industry with an in-depth look at the demographics and investing activity of plan participants who use the SDBA option.  

Products April 2, 2003

Online Duet Teams up for Solo(k) Illustration Tool

April 2, 2003 (PLANSPONSOR.com) - Small business owners weighing the choice of implementing an owner-only 401(k), sometimes called a Solo(k) or Individual(k), over other types of retirement plans have a new analysis tool at their disposal.
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The 401khelpcenter.com and Pensiononline.com have partnered to make available a freemaximum contribution analysis tool.   The free tool, found at  http://www.pensiononline.com/401khelpcenter/ , is being offered to small businesses that are now contemplating implementing a Solo (k) plan over various other types of retirement plans.  

This retirement plan is now an option for small businesses following the passing of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which made a number of constructive changes to existing laws governing 401(k) plans and allowing them to enter the small business market space.

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Because the Individual (k) plan is a tax-qualified, 401(k)-based business retirement plan, it provides business owners with all the benefits associated with traditional qualified retirement plans such as tax-deductible contributions and tax-sheltered growth. In addition, thanks to pension reform legislation, the new Individual (k) plan affords many business owners several compelling advantages when compared to traditional business retirement plans, including:

  • higher contribution limits
  • funding flexibility
  • flexible distribution options, including hardship and in-service withdrawals, and
  • access to tax-free loans.

You can fInd out more about those advantages in  Solo Flight from the December issue of PLAN SPONSOR .

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