The Markets May 12, 2010

401(k) Participants Flocked to Equities in April

401(k) participant transfers were strongly equity-oriented in April, according to the Hewitt 401(k) Index.
Reported by

A total of $288 million moved from fixed-income investments into equities during the month. Excluding company stock fund flows, diversified equities gained transfers of $498 million, Hewitt data showed. In addition, nearly three-quarters (71%) of the days were equity-oriented in April. 

Both large and small U.S. equity funds received large inflows, and together accounted for two-thirds of total transfers. Large U.S. equities gained $227 million and small U.S. equities received $211 million. Lifestyle/premixed funds also received $110 million in transfers during the month. 

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All three fixed-income asset classes experienced outflows in April—mainly from GIC/stable value funds, which lost a total of $294 million. In addition, company stock funds had outflows of $210 million. As the MSCI EAFE Index declined (while domestic markets were up), international funds had net transfers out of $86 million.  

Participants’ overall equity holdings rose by 0.6% in April to 59.5%, due to stock market return and participant transfer activity. GIC/stable value funds held 24.63% of 401(k) assets at the end of the month, while large U.S. equity and lifestyle/premixed held 17.86% and 11.86% of assets, respectively.

Company stock funds accounted for 14.2% of assets at the end of April. 

Employee-only equity contribution was also up—from 60.2% to 60.9% at the end of April. Lifestyle/premixed funds took in 24.19% of participant contributions during the month. Large U.S. equity took in 17.27% and GIC/stable value funds received 18.71% of participant contributions. 

Lifestyle/premixed, GIC/stable value, and large U.S. equity funds were also the biggest receivers of overall contributions to 401(k) plans in April at 23.74%, 17.29%, and 15.96%, respectively. Company stock funds received 13.19% of overall plan contributions during the month. 

The “Hewitt 401(k) Index Observations” for April is here. 

Data & Research May 12, 2010

Almost a Third of Advisers Increased Use of Guaranteed Income

While many advisers are still not embracing annuities in retirement income planning, almost 30% said they have increased their use of guaranteed income streams amid the market crisis, according to Cerulli Associates.
Reported by

In response to market volatility, in 2009, advisers seemed to favor making more “simplistic” changes to their retirement income strategies, rather than adding annuities, according to Cerulli. For instance, the changes advisers were most likely to make were reducing risk in client portfolios (41%) or reducing withdrawal rates (31%). Cerulli said few advisers have adopted many elements of a “holistic retirement income plan,” such as guaranteed income streams and budget analysis, due to the “enduring legacy of an accumulation focused practice.”

Individual retirement account (IRA) rollovers are one area poised for growth in annuity sales by advisers. As Baby Boomers retire, Cerulli analysts estimate $1.8 trillion in rollovers between 2009 and 2014. Advisers have grown increasingly receptive to both immediate and deferred annuities as a destination for a portion of rollover dollars, as 57% of adviser surveyed in 2009 would consider both immediate and deferred annuities for rollover dollars, up from 41% in 2005, according to Cerulli.

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As of year-end 2009, Cerulli found that aggregate retail annuity assets recovered by 16% to nearly $2 trillion. Variable annuity assets rebounded 20% to nearly $1.4 trillion—however, Cerulli noted that sales of VAs, on both a gross and net basis, declined during 2009 (19% and 27%, respectively). The decline of VA sales indicates that the insurance industry continues to have difficulty attracting the new assets necessary for long-term growth, Cerulli said.

Gowing forward, Cerulli found that insurance companies are exploring alternative products and distribution opportunities, such as a combination of annuity/long-term care insurance products and adding more insurance guarantees (such as mutual funds with living benefit wrapper). “In order to successfully attract assets, new product- or distribution-related developments must be designed to please advisors, who will ultimately translate the benefits to their clients,” according to Cerulli.

More information about the report, “Cerulli Quantitative Update: Annuities and Insurance 2010” is available at www.cerulli.com.

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