Q407 Deals DC Plans a 1.88% Setback: Callan

March 11, 2008 (PLANSPONSOR.com) - The latest Callan Associates data from its Defined Contribution Index shows the average DC plan suffered a 1.88% fourth-quarter investment loss.

A Callan news release said that relative to the typical target-date 2030 fund, the average DC plan outperformed on the strength of its more conservative asset allocation. The index’s equity allocation – now at 70% – tends to be at the low end of the range for target-date 2030 funds, a comparison Callan said is instructive because the typical target date 2030 fund fits the participant age demographics of the typical DC plan.

However, when compared to a typical defined benefit plan, Callan said the typical DC plan underperformed by 118 basis points. “This is significant underperformance that is attributable not just to the fact that the performance of the average DC plan is measured net of fees, and the performance of the average DB plan is measured gross of fees,” Callan said in the news release.

For the full life of the index, the typical DC plan underperformed both the typical DB plan and the typical target-date 2030 fund.

Callan also reported that total turnover, a measure of monies shifting between asset classes either because of plan sponsor or participant activity, was 0.28%, down from the prior quarter’s turnover of 1.22%. In terms of where money flowed, real estate funds experienced the heaviest asset setbacks during the fourth quarter, with 10.94% of assets exiting real estate funds.

Stable value funds continued their persistent pattern of outflows (-1.88 in the fourth quarter). In contrast, Callan said, asset allocation funds experienced inflows of 5.19% during the quarter.

In fact, asset allocation funds now have an average of 13.9% of total average plan assets, up from the previous quarter’s mark of 13.6% of assets. Much of the growth is occurring within target-date funds. In the fourth-quarter,  target-date funds comprised 62% of the asset allocation funds offered, versus 38% for target-risk funds.