DC Participants not Fully Reaping Benefits of Market Rebound

December 1, 2009 (PLANSPONSOR.com) - Plans in the Callan DC Index underperformed the average comparable (2030) target-date fund last quarter, and the difference in allocations to equity could explain why.

According to a summary of Index highlights, while the typical 2030 target-date fund has 83% in equities, the equity allocation of the Callan DC Index is 62% as of September 30, 2009. The DC Index is compared to 2030 target-date funds because such funds would be the most appropriate target-date funds given the age of the typical DC participant, Callan explained.

Its lower relative equity allocation throughout the market collapse allowed the DC Index to outperform the average 2030 target date fund, but now it is causing it to underperform as the market recovers.

However, the tide is changing as participants venture back into equity allocations. Callan said third quarter transfer activity was almost an inversion of what was experienced a year ago when poor market conditions resulted in sizeable flows into stable value and money market funds and out of riskier funds. With market conditions greatly improved, participant transfers were positive for every public diversified equity asset class except domestic large cap equity.

Turnover was above average for the DC Index at 1.13% of assets for the quarter.

Flows into target-date funds have been positive every quarter since the start of the DC Index, according to the summary. Target date funds are now offered by 69% of DC plans in the Index. When offered, they account for 18.52% of assets. As a percent of total DC assets, target date funds account for 9.5%, according to the Callan DC Index.

The DC Index also underperformed the average corporate DB plan last quarter, and has underperformed by nearly 2% annually since the DC Index’s inception at the beginning of 2006.

The Callan DC Index tracks the cash flows and performance of more than 70 plans, representing more than 800,000 defined contribution participants and over $50 billion in assets. The Index is updated quarterly and reflects information on 401(k) plans as well as other types of defined contribution plans.