The Markets January 10, 2017

401(k) Traders Stayed the Course in 2016

“The rise of assets in target-date funds accounts for some of the light-trading in 401(k)s we saw in 2016,” explains Rob Austin at Aon Hewitt.
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In 2016, world events including Brexit and the U.S. elections drove spikes in 401(k) trading followed by long lulls in activity, according to the Aon Hewitt 401(k) Index.

There were 28 days of above-normal trading activity in 2016, slightly less than the past five and 10-year averages (32 and 35 days, respectively). Nearly one-third of the higher-than normal trading days for the year occurred in the weeks leading up to the U.S. Presidential election. 

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A net total of 2.13% of balances traded in 2016, slightly higher than the trailing five year average (2.02%). The percentage of assets in target-date funds (TDFs)  rose to 24.1% in 2016, up from 23.1% in 2015.

The percentage of assets in company stock continued to decline. Company stock represented 8.7% of total 401(k) assets, down from 9.5% in 2015. After reflecting market movement, contributions and trades, the percentage of balances in equities (65.4%) and fixed income (34.6%) at the end of 2016 remained unchanged from year-end 2015.

“The rise of assets in target-date funds accounts for some of the light-trading in 401(k)s we saw in 2016,” explains Rob Austin, director of retirement research at Aon Hewitt. “While we did see some reaction by 401(k) inve,stors to major events in 2016, it was more measured than what we have seen in prior years. By and large, investors stayed the course and kept their eye on their long-term investment goals.”

NEXT: December trades favored equities

December was a light trading month for investors in defined contribution plans according to the Aon Hewitt 401(k) Index—a sharp contrast to November, which saw the highest trading activity in over three years. There were zero above-normal trading days in December. On average, 0.017% of balances traded each day, and when participants made trades, they favored equities over fixed income funds.

Small U.S. equity funds saw $130 million in inflows in December, followed by Large U.S. equity funds ($102 million) and Mid U.S. equity funds ($71 million). Company stock funds saw the most outflows during the month, at $163 million. Bond funds posted outflows of $114 million, while Stable Value funds posted outflows of $49 million.

After combining contributions, trades, and market activity in participants’ accounts, the percentage of balances in equities was 65.4% at the end of December, up from 65.0% at the end of November. New contributions continue to favor stocks, but at a lower rate than in the past. In December, 65.2% of employee contributions were into equities—a decrease from 65.7% in November.

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Client Service January 10, 2017

401(k) Plans Critical for Attracting Millennials

Eighty percent of this demographic group prefers to work for a company with a 401(k) plan.
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Eighty percent of Millennials said they would prefer to work for a company with a 401(k) plan, according to a survey by Fisher Investments 401(k) Solutions. However, 80% of Millennials failed Fisher’s 401(k) IQ in the Workplace Quiz, indicating they are in need of education about retirement planning.

Millennials rely the most on information about retirement planning from individual contacts, be they friends, relatives or co-workers, dispelling the notion that they rely solely on the Internet. They also said they would like their retirement provider to reach out to them personally.

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However, only 25% of Millennials working at companies with 200 or fewer employees are enrolled in their plan. Millennial women are less confident than Millennial men in their ability to pick investments. They are also less likely to be enrolled in their company’s plan and more likely to fail the 401(k) IQ Quiz.

“We’re encouraged that the vast majority of Millennials recognize that 401(k) plans can be indispensable to meeting their long-term savings goals,” says Nathan Fisher, managing director of Fisher Investments 401(k) Solutions. “However, when you get down to the nuts and bolts of planning, it becomes clear there’s an education gap. What’s interesting is the reliance and trust Millennials place on advice from their immediate network instead of retirement providers.”

KRC Research conducted the online survey of 1,013 employees for Fisher Investments, conducted in early October.

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