September 401(k) Trading at its Lowest Point Since March 2020

The latest data from Alight Solutions show all but two trading days saw net trades moved from equities to fixed income.



Alight Solutions has published September updates from its 401(k) Index, noting that with stocks posting their worst month since March 2020, “markets experienced a flight to safety among 401(k) plan investors.”

All but two trading days in the month saw net trading activity moving money from equities to fixed income, Alight says. Stable value funds accounted for 80% of net inflows and money market funds received another 15%. Half of net outflows were from target-date funds.

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On average, 0.012% of 401(k) balances were traded daily, compared to an average of 0.009% last month. Investors favored moving assets into fixed-income funds during 19 out of 21 trading days. Trading inflows mainly went to stable value, money market and bond funds, while outflows were primarily from target-date, large U.S. equity, and mid U.S. equity funds, Alight says.

After reflecting market movements and trading activity, average asset allocation in equities decreased from 68.3% in August to 67.2% in September. Additionally, new contributions to equities decreased from 68.5% in August to 68% in September.

In its observations for the third quarter, Alight notes that see-sawing stock prices had 401(k) plan investors trading in starts and stops. As Wall Street was posting gains at the beginning of the quarter, trading was light and saw money moving to equities. However, as stocks slid in the second half, trading activity increased, and money flowed to fixed income.

There were five above-normal trading days in the quarter, down from 17 above-normal days seen in the second quarter. Net transfers for the quarter were 0.24% of balances. Alight’s data shows that 42 out of 64 trading days in the first quarter saw net trading dollars moving from equities to fixed income.

According to the index, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the index, equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.

Motion to Dismiss Filed in ERISA Lawsuit

Management and information consulting firm Booz Allen Hamilton has asked the court to dismiss the claims against it.

One plan sponsor is fighting back in federal district court against a lawsuit that alleged a plan breached its fiduciary duty to participants.   

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Management and information consulting firm Booz Allen Hamilton has filed a motion to dismiss the plaintiff’s claims, brought under the Employee Retirement Income Security Act, for failure of the complaint to state a claim on which relief can be granted.

“This case hinges on plaintiff’s theory—shaped from the vantage of hindsight—that the plan could and should have picked investments that he says performed better,” the motion to dismiss shows. “[The complaint], if found viable, would effectively expose all employer-sponsored 401(k) plans to sweeping liability whenever the plan’s fiduciaries select anything except investment options that end up generating the very best returns during a time period cherry-picked by any given plaintiff. ERISA does not impose such liability.”

Plaintiffs filed the class action complaint August 1. In the complaint plaintiffs alleged plan fiduciaries caused harm to participants retirement investments and savings, because the plan’s target-date suite–BlackRock Lifepath Index Target Date Funds—underperformed comparator funds.  

Attorneys with Philadelphia-based law firm Morgan Lewis & Bockius brought the motion on behalf of Booz Allen. The court filing argued for the complaint to be bounced with prejudice. 

“The complaint fails to satisfy even the most foundational requirement of comparing the BlackRock [target-date funds] to meaningful benchmarks, and its myopic focus on alleged investment underperformance is not enough, regardless, to demonstrate imprudence, as ERISA’s fiduciary duties are rooted in process, not results,” the memorandum to dismiss states. “Fiduciaries of employer-sponsored retirement plans are no better equipped with crystal balls and time machines than Wall Street banks or day traders.”

Starting in late July and into August, Philadelphia-based law firm Miller Shah filed a series of fiduciary breach lawsuits, with almost identical ERISA fiduciary breach allegations as lead attorney or co-counsel. In total, there were 11 ERISA lawsuits filed by the law firm, all of which made similar claims about the BlackRock target-date series.

BlackRock was not named a defendant in any of the lawsuits. 

Booz Allen Hamilton is based in McLean, Va.. The firm’s retirement plan has assets of $6.76 billion as of December 31, 2020, according to court documents.   

A spokesperson for Booz Allen Hamilton declined to comment on the lawsuit beyond the motion to dismiss.

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