March 14, 2012
--- The Callan DC Index bounced back from a disappointing third
quarter to post a gain of nearly 7% in the fourth quarter of 2011. ---
despite three positive quarters during the year, the Index finished in the red,
losing more than 1% in 2011—its first annual loss since 2008. The average corporate
defined benefit (DB) plan performed significantly better than the DC Index,
returning 2.94% for the year.
Index has consistently underperformed DB plans in down markets, losing an
additional 1.65% during down quarters on average. In contrast, it has slightly
outperformed the average DB plan in rising markets, averaging 0.22% more in
total return during up quarters.
typical 2030 target-date fund scored well in the fourth quarter, slightly
outperforming the DC Index and the average corporate DC plan, but this has not
been the case in the longer term. Since inception, the typical 2030 target-date
fund has returned just 1.89% annually, and has tended to lag the DC Index
considerably during down markets.
variability in DB versus DC performance can be partially explained by the
differences in diversification between the two plan types: DB plans tend to
include allocations to asset classes such as alternatives, which are not
generally represented in DC plans. The difference in DC versus 2030 target-date
fund performance, in contrast, reflected the greater allocation of the typical
2030 target-date fund to equities than that of the typical DC plan.