Data & Research June 7, 2017

DC Plan Participants Keep Withdrawals and Loans Down in 2016

At year end 2016, the percentage of participants with an outstanding loan balance was 17.0%, compared with 17.4% at year end 2015.
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Withdrawal and contribution data indicate that essentially all defined contribution (DC) plan participants continued to save in their retirement plans at work last year, according to “Defined Contribution Plan Participants’ Activities, 2016,” by the Investment Company Institute (ICI).

ICI data shows that in 2016, 3.3% of defined contribution plan participants took withdrawals from their  plan accounts, with 1.5% taking hardship withdrawals. These levels of activity are similar to 2015, ICI says.

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Loan activity in 2016 remained in line with more recent quarters, when it stabilized after a three-year rise. The percentage of defined contribution plan participants with loans outstanding rose from the end of 2008 (15.3%) through 2011 (18.5%). That percentage leveled out in 2012 through 2014. At year end 2016, the percentage was 17.0%, compared with 17.4% at year end 2015.

The ICI research also found the share of participants that stopped making contributions last year was in line with activity in prior years. In 2016, 2.7% of DC plan participants stopped contributing, compared with 2.6% in 2015 and 2.8% in 2014. It is possible that some of these participants stopped because they had reached the annual contribution limit, ICI says.

During 2016, 9.4% of DC plan participants had changed the asset allocation of their account balances, compared with 9.7% during 2015. Reallocation activity regarding contributions in 2016 was slightly lower than in recent years: 5.6% of DC plan participants changed the asset allocation of their contributions in 2016, compared with 7.6% in 2015 and 6.6% in 2014.

Defined contribution plan assets are a significant component of Americans’ retirement assets, representing more than one-quarter of the total retirement market and about one-tenth of U.S. households’ aggregate financial assets at year end 2016, according to ICI data.

ICI has been tracking participant activity through recordkeeper surveys since 2008. The recordkeeping firms represent a broad range of DC plans and cover more than 29 million employer-based defined contribution retirement plan participant accounts as of December 2016.

The full report is here.

The Markets June 7, 2017

The Callan DC Index Posted Strong Gains During First Quarter 2017

The growth of 4.67% is the highest quarterly bump for the index since the end of 2013.
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The Callan DC Index, which represents 90 large defined contribution plans with $150 billion in assets, rose 4.67% in the first quarter—its largest return since the end of 2013.

However, the age 45 target-date fund (TDF) rose 5.57% in the quarter. Callan says TDFs tend to outpace the index because it does not have as high an exposure to equities as TDFs. The age 45 TDF has 76% of its assets allocated to equities, whereas the index has only 69%, Callan says.

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During the quarter, plan balances rose 4.74%, with the majority of that increase, 4.67%, due to the market performance and only 0.07% due to contributions.

The only equity class to see inflows during the quarter was emerging market equities, which had 1.95% of inflows. 

Target-date funds took in 88 cents of every dollar that was invested in DC plans in the first quarter. TDFs now account for nearly one-third, 32%, of plan assets. The next biggest fund holding is U.S. large cap equity funds, which account for 23% of plan assets, according to Callan.

Only 0.42% of assets in DC plans were exchanged for other investments, below the 0.64% historical average.

Full details of the Callan DC Index can be viewed here.

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