Participant Transfers Heat Up Ahead of Federal Debt Agreement

Whether it was the debt crisis or the markets, participant transfers have perked up in recent days. 

Aon Hewitt reports that in the days leading up to the recent agreement to raise the federal debt ceiling, 401(k) trading volume has reached “significant” levels—an indication that workers have been highly reactive amidst continuing uncertainty, according to the consultancy.

Aon Hewitt’s database of more than 100 401(k) plans, representing 4.7 million workers shows a marked increase in 401(k) trading volume since July 25. According to the firm, on a typical day, participant transfers total $300M-$400M in trades. However, late last week, trading volume was two-to-three times the normal level, reaching a peak of more than $900M on Thursday, July 28.

Trading volume remained high on Monday, reaching $862M, as Congress moved closer to reaching a compromise.

According to Aon Hewitt’s 401(k) Index, last week’s transfer activity showed significant movement away from domestic equities into fixed income vehicles, primarily stable value funds.  In fact, 96% of assets moved into fixed income during the period, the third highest monthly transfer amount out of equities and into fixed income investments since Aon Hewitt began tracking this data in 1997.