DC Participants Followed Market in Q4 2010

Fourth quarter defined contribution (DC) participant transfer activity appeared to be driven by momentum market timing, according to the Callan DC Index.

Callan noted that small cap stock funds performed well during the quarter and also witnessed some of the heaviest inflows by participants, while weak performers such as fixed income and stable value experienced equally sizable outflows.  

Target-date funds (TDFs) remained popular within the Index, accounting for nearly 40% of inflows in the fourth quarter and with consistent inflows throughout the year and the history of the Index.   

The Callan DC Index returned 7.14% in the fourth quarter. For the year, the Index gained 12.13%.  

The fourth quarter marks the first time in more than two years that total returns contributed as much to the Index’s asset growth as net flows.  

The Callan data showed flows were a mixed bag for the year. Domestic fixed income surprisingly experienced net inflows. On the other side of the ledger, domestic large cap equity (-9.59%), international equity (-5.91%) and stable value (-2.84%) all experienced outflows for the year.  

During 2010, the share of equity funds in the overall DC Index grew from 62.5% to 64.9%. This is still well below the Index’s all time high of 70.5%, reached at the end of 2006.  

Assets within the Index have grown at a respectable annual pace of 6.34% since its inception in early 2006. However, Callan noted that while the Index outpaced the average corporate DB plan for the quarter, since the Index’s inception, the average corporate DB plan has outperformed the Index by 1.61% annually.  

The Callan DC Index is an equally weighted index tracking the cash flows and performance of more than 70 plans, representing greater than 800,000 defined contribution participants and $80 billion in assets. The Index is updated quarterly and reflects 401(k) plans as well as other types of defined contribution plans.