January Equity Market Upset Ignites 401(k) Equities Exit

February 15, 2008 (PLANSPONSOR.COM) - 401(k) participants with money in the equity market stampeded for the exits in droves during January, taking a record $1.75-billion in assets with them into fixed income investments, according to the latest Hewitt Associates 401(k) Index.

Hewitt said the equity to fixed income asset drain was the largest equity transfer in either direction since it began tracking 401(k) investing trends in 1997. For January, according to Hewitt, participants transferred into   money market, GIC/stable value, and bond funds.

The January daily net transfer activity reached its highest level since late 2002 with an average of 0.09% of balances transferring on a daily basis. For the month, the index registered above normal transfer activity during 10 days — nearly all of which were fixed income oriented.

Monies moved out of equities and towards fixed income investments during 86% of the business days in January. On January 22, after the Federal Reserve cut interest rates by 75 basis points and the Dow Jones Industrial Average declined over 500 points, transfers were 11 times the normal level and were strongly fixed income oriented, the Hewitt data showed.

On the losing end during January, Large U.S. equities suffered the most sizable outflows among all asset classes of $521 million. Significantly, despite several years of asset gains for international equity funds, in January the asset class gave back $489 million (See  401(k) Transfers in 2007 Had International Flavor ). Hewitt said middle and small U.S. equity showed $370 million transferring out.

On the other end of the spectrum, the biggest January winner, GIC/stable value, was pumped up with $888 million. Interestingly, bonds received almost as much inflows as stable value, with $862 million transferring to these funds. Money market had the lowest inflows among all three fixed income asset classes of $114 million, Hewitt reported.

Both market decline and participant transfers resulted in a 2.5% decrease in the overall 401(k) asset allocation to equities, to a three-year low of 64.4%.

Participant discretionary contributions to equity investments also declined, from 68.4% at the end of December to 67.8% at the end of January.

More information is  here .