Participant Equity Allocations Rising, but Slowly

Participants in 401(k) plans continued a cautious move into equity during August, with a total of $203 million shifted from fixed income into equities, according to the Hewitt 401(k) Index.

Hewitt said transfer activities were equity-oriented on 62% of the days during the month, and many equity asset classes realized net inflows during the month. Premixed funds, including target-risk and target-date portfolios, received approximately one-third of the net transfers, with $147 million moving into this asset class.

International funds were also at the top of the list at $80 million, as the MSCI EAFE Index returned 5.4% in August. Both small U.S. equity and large U.S. equity received small net inflows.

Stable value funds experienced the largest outflows of the month, with nearly $300 million transferring out, representing 65% of the net transfers. Since April, those funds have had outflows of nearly $1 billion, according to Hewitt. Company stock funds represented the remaining outflows ($138 million) in August.

Participants’ overall equity holdings were up again by 0.9% in August to 56.2%, which Hewitt said was due primarily to market movement and, to a smaller extent, participant transfers. While equity allocations have continued to rise since February, they remain well below previous levels, as one year ago, the average equity allocation was 62%.

Overall, transfer activity was fairly light in August, as it has been since April. On a typical day in August, net transfer activity averaged 0.04% of balances. Only one day in the month had an above-normal level of transfer activity.

August 401(k) Contribution Activity

Employee-only contributions to equity funds edged up 0.3% from 57.6% at the end of July to 57.9% at the end of August, according to the Hewitt 401(k) Index. However, similar to overall equity holdings, the amount of employee-only contributions going into equity is still significantly lower as compared to August 2008 (63%).

Stable value funds took in the most employee-only contributions at 22.01%, followed closely by premixed funds, which took in 21.78% of employee contributions. Large U.S. equity took in 16.95% of employee contributions in August.

International equity funds (8.03%) and company stock funds (7.38%) rounded out the top five investment choices for employee-only contributions.

Premixed funds received the most overall contributions in August (21.10%), followed by stable value funds (20.33%), and large U.S. equity (15.67%). Company stock funds received 13.66% of overall contributions during the month.

The August 2009 Hewitt 401(k) Index data is here.