DC Participants Flee Equities in Q308

Defined contribution plan activity rose as participants reacted to economic turmoil by reallocating their portfolios away from equity assets to fixed-income funds, according to The Callan DC Index report for third quarter.

A Callan press release said total Index turnover reached 1.13% for the quarter ended September 30— well above the quarterly historical average of 0.78%. Stable value, money market, and domestic bond funds collectively captured nearly 80% of inflows. Target-date funds were the only exception to participants’ flight to fixed income, with an inflow of 18.6%.

Callan said inertia among younger investors, who compose a large share of target-date fund participants, was in effect in the third quarter, and a strong correlation exists between portfolio size and investor activity.

The Index, down 8.04%, outperformed the average 2030 target-date fund, which lost 11.6% in the third quarter. High equity allocation in 2030 target-date-funds—85% compared with 66.7% in the typical DC plan—proved a significant liability this quarter, Callan said.

The Index also outpaced the average corporate defined benefit plan, which returned -8.35% for the quarter.

The Callan DC Index tracks the asset flows and performance of approximately 70 participant-directed plans composed of more than 800,000 participants and $50 billion in retirement assets.