401(k) Participants Still Cautious Despite Equity Upswing

October 10, 2006 (PLANSPONSOR.com) - Though equity markets continued to rise in September, the Hewitt 401(k) Index showed net transfers for 401(k) participants favored fixed income investments three-quarters of the days in the month.

Lifestyle funds had the highest transfers in for the month of September at $83 million, while GIC/Stable Value funds also had positive flows at $81 million for the month. According to the Hewitt data, Large US Equity had positive flows for the first time this year of $58 million. Large US Equity has lost $900 million to participant transfers year-to-date.

While Mid US Equity funds lost $29 million of participant assets during the month, and Small US Equity lost $44 million, company stock investments were the biggest losers of the month with a $230 million outflow.

Despite the continuing trend of transfers moving to fixed income investments, the percentage of participant balances invested in equities inched up to 67.4% for September. Large US Equity funds held 20.68% of participant balances at the end of the month, while international equity funds held slightly more than 7% of 401(k) balances. The percentage of 401(k) assets invested in company stock was 21.59% at month end, according to Hewitt.

The growth in equity holdings could be in part due to the focus of incoming contributions. Overall 20.35% of contributions went to Large US Equity funds in September. Company stock investments gained 17.57% of overall contributions, while 16.5% went to GIC/Stable Value funds.

Participants increased their percentage of discretionary contributions invested in equities to 67.8%, Hewitt said.  By asset class, employee contributions favored Large US equity (21.97%), GIC/Stable Value (17.6%) and Lifestyle funds (14.38%).  

For the third quarter, Lifestyle funds had the highest net transfers in with $310 million. International funds had transfers in of $220 million, while Small-Cap Equities lost over $300 million. 

Hewitt 401(k) Index results for September can be viewed here .