The Markets December 14, 2015

Participant Equity Allocations Up Slightly in November

Though most trading days favored fixed income, large U.S. equity funds received the most inflows.
Reported by

November was another slow trading month in defined contribution plans with no days of above-normal trading activity, according to the Aon Hewitt 401(k) Index.

Participants favored fixed income over equities when they made trades. In November, 60% of the trading days showed more inflows to fixed income.

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However, large U.S. equity funds received the most inflows, at $112 million. International equity took in $30 million, and GIC/stable value funds posted $26 million in net inflows.

Topping the list of fund outflows were target-date funds ($118 million), while small U.S. equity funds posted a net $27-million outflow and participants transferred $19 million out of company stock funds.

After combining contributions, trades, and market activity, the overall equity allocation in participants’ accounts rose to 65.6% at month-end, up slightly from 65.5% at the end of October. Future contributions to equities increased to 66.4%, from 66.0% in October.

More information from the Index is here.

Data & Research December 14, 2015

Study Finds Strong Amount of Pension Risk Transfer Activity

Nearly 15% of large DB plans experienced some type of risk transfer activity during a five-year period.
Reported by

A Pension Benefit Guaranty Corporation (PBGC) study of defined benefit (DB) plans with more than 1,000 participants found 534 had some kind of risk transfer activity in the years 2009 to 2013.

This number includes 145 cash balance plans, of which 135 are collectively bargained plans, and 399 traditional DB plans. Fifty of those 534 plans went through a standard termination—which the researchers call the “ultimate form of risk transfer.”

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More than one million participants left the plans as a result of the events. Almost 400 of the events involved lump sum payments; others involved annuity purchases to transfer pension liabilities.

Information regarding risk transfer activity has generally been limited to press reports of events conducted by major companies, the researchers noted. The study is only an estimate of the level of risk activity since it concludes that a risk transfer has occurred indirectly by analyzing Form 5500 annual reports. Actuaries were cautious in declaring a pattern in the data; they think the actual number of risk transfers was probably higher than indicated by the study.

PBGC is interested in these events because:

  • Lower insurance premium payments may affect PBGC’s long-term financial condition;
  • Past risk transfer activity can help project future activity and help PBGC plan for its effects; and
  • Participants may elect to receive lump sums, and if so, policy makers will want to ensure they have the correct tools to manage their funds wisely.

The agency has begun collecting data about risk transfer activity from plans.

The study concludes that the plan sponsor’s financial condition didn’t determine risk transfer activity, nor did union status. But while union plans and non-union plans were equally likely to offer risk transfers, the percentage of union members accepting them was lower.

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