Callan DC Index Shows Strong Flows to TDFs

The Callan DC Index enjoyed a strong first quarter in 2012, returning 8.7%.

More than three quarters (77%) of defined contribution flows were directed toward target-date funds during the quarter, a proportion that is greater than in any quarter since the Index’s inception.  

Callan noted that regardless of performance, target-date funds have consistently attracted participant assets. Since early 2006, target-date funds have never experienced a quarterly outflow. Over that period of time, quarterly flows into target-date funds have averaged 41%.   

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After target-date funds, the asset class that has attracted the most inflows on average since 2006 has been international equities, which have averaged 9% quarterly inflows.  

Flows into target-date funds primarily came from fixed income investments during the quarter. Turnover in the DC Index was above average over the past three months at 1.33%.  

For the first time since the Index’s inception, assets in target-date funds exceed those in stable value funds (14.4% and 12.1%, respectively). Large cap domestic equity continues to hold the top spot at 24.7% of assets; however, Callan notes that while target-date funds have consistently gained inflows, domestic equity has netted an average quarterly outflow of -19.9% since the Index’s inception.

 

PSNC 2012: Defining Success

At the 2012 PLANSPONSOR National Conference, plan sponsor panelists shared their retirement plan success tactics, such as mandatory enrollment meetings and personalized communication.  

Roger Buchtman, controller at Fort Wayne Metals Research Products Corp., said his company requires employees to attend annual open enrollment meetings for its 401(k) plan, and those who opt out must complete an acknowledgment form. “Our ultimate goal is 100% participation,” Buchtman said. “We know we may never get there but that’s what we try to achieve.” 

The company has 95% participation, including full-time and part-time employees—part-timers make up about 8% of the company’s work force. The company match is 50% up to 7% of base salary, and the plan also offers profit sharing at 2% of earnings. 

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Buchtman said the mandatory annual enrollment meetings are important for targeting those who may have reduced or stopped their contributions because of the economy or other financial issues. The company also targets employees over age 50.

Aimee Lowry, benefits division chief of the Fairfax County government in Virginia, said it is important for employees to have individualized retirement readiness goals because different age groups have different needs. “We are challenged by an evolving work force,” she said.

For instance, the younger work force is more transient than older generations and therefore may have several retirement plans throughout their lives. 

Fairfax County offers a holistic approach to retirement that includes financial and physical readiness. It has a “strong retiree medical program,” Lowry said, as well as financial programs. If employees become financially healthy, she said participation rates will improve.

In Lowry’s opinion, nothing beats meeting face-to-face to understand what employees really need. “I truly believe there is no substitute for boots on the ground,” she said. “So we really have sort of immersed ourselves.”

In addition to meeting in person, Fairfax has print campaigns in multiple languages. Because it has such a diverse work force ranging from doctors to landscapers, Lowry said specialized communication is key.

Bob Tomaschko, director of compensation, retirement & HRMS at Land O’Lakes, echoed the importance of communication in improving retirement readiness and participation rates. Despite his company offering automatic enrollment and helpful tools to prepare employees, he said it does not substitute for traditional communication. In fact, he said communication is even more vital when auto features are in place. "We do believe that we have to be out there providing communication and education to our participants,” he said.

Tomaschko is also a believer in advice, which he said can generate higher returns for participants. Many participants at his company have accessed the available online advice and it has received a positive response.

Tomaschko anticipates an increased prevalence of managed accounts in the industry as a whole.

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