Building on the year’s early momentum, defined contribution (DC) plan balances grew 1.69% in the fourth quarter. This gain was mostly attributable to return growth (1.52%) rather than inflows or plan sponsor and participant contributions (0.17%), Callan said.
Despite this growth, DC plan returns slightly lagged the average corporate defined benefit (DB) plan. While DC plans earned 12.28% for the year, DB plans gained an even better 12.67%. Since the Index’s inception, DB plans beat DC plans by an average of 1.81% annually.Target-date funds had a strong showing in 2012, with the average 2030 fund up 13.69% for the year. Since the Index’s inception, however, target-date funds lag both the average DB and DC plans, reflecting poor performance during market downturns.
Target-date funds attracted the majority of fund flows during the fourth quarter, as well as the year as a whole. In 2012, target-date funds attracted nearly two-thirds (63.3%) of every dollar that flowed within DC plans. This flow data reflects participant and plan sponsor contributions, withdrawals, transfer activity, and any changes in the fund or asset-class lineup.
Both the quarter and the year saw outflows from company stock funds, reflecting a longer-term trend for DC plans. Domestic equity—both large cap and small/mid cap—also experienced net outflows for the year. Domestic and international equities saw outflows during the fourth quarter likely due largely to uncertainty related to the Fiscal Cliff. Both money market and stable value funds experienced net inflows during the same period, reflecting their perceived safe-haven status.
Domestic large cap equity’s share of DC assets continues to contract, while target-date funds’ share continues to edge up. While domestic large cap once held 32% of assets, it now accounts for a little more than 23%. On the other hand, target-date funds have grown to nearly 16% of DC plan assets.Overall equity exposure stands at 62.8%, which is consistent with last year (62.0%), though far below the pre-economic crisis high of 70.5% reached in December 2007.