Despite Early Upheaval, September 401(k) Transfers Relatively Quiet

October 22, 2007 ( - 401(k) investors may have been in an unsettled mood during September's market turbulence but the month as a whole was still comparatively quiet in trading activity terms.

That was a key showing of the latest monthly figures from the Hewitt 401(k) Index, which found an average of 0.05% of balances moving on any particular day – just slightly above trailing 12-month average daily net transfer activity levels of 0.04%, according to a Hewitt news release.

That follows August’s performance during which many participants continued fleeing the equity markets (See  Market Fear Prompts 401(k) Participants to Shift Money to Fixed Income).

The Hewitt data showed that trend continued as 401(k) participants moved more money into fixed income holdings on 11 of the trading days in September as compared to equities eight of the days (42%).

According to Hewitt, the month as a whole may have been unremarkable from an asset transfer perspective, but that wasn’t that case during five days when the amount of asset movement was above normal.

For example, when the Federal Reserve cut interest rates and the Dow Jones Industrial Average climbed 2.5% on September 18, the 401(k) Index transfers were 2.5 times the normal level. In fact, during volatile periods over the whole quarter, there were  above normal levels of transfer activities during 17 days — which makes it the busiest quarter since 2002.

Interestingly, despite the overall asset transfer trends during the month favoring fixed income, the net dollars transferred went the opposite direction, according to Hewitt. A total of $126 million was transferred out of fixed income investments and into diversified equities (equities excluding company stock).

Specifically in the equity arena, company stock saw the largest outflows in September, totaling $324 million. The return on small cap has lagged behind international and large cap during the third quarter and, as a result, 401(k) participants have fled this asset class with $63 million moving out in September and nearly $260 million exiting over the entire quarter.

On the other hand, international equity was again one of the best performing asset classes for the month and was blessed with the largest inflows with $95 million transferring in during September. Lifestyle funds enjoyed large inflows of $83 million while GIC/Stable value also received $85 million in September.

Although the equity markets did well during September, participants’ overall equity allocation was only slightly up by 0.1% to 67.8%. This was mainly due to the large outflows coming out of company stock funds, Hewitt said.

A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months, Hewitt said.

The Hewitt 401(k) Index is here .