The Markets August 16, 2010

Participant Transfers in July Remain Fixed Income Oriented

Despite the market rally, the direction of the total transfers in July remained fixed income-oriented, according to the results of the Hewitt 401(k) Index. 

Reported by

Approximately $449 million (or 0.42% of total assets) moved from equities to fixed income investments during the month, with the majority coming out of company stock funds. Excluding company stock, only $169 million shifted from diversified equities to fixed income investments.   

Over three-quarters of the days in July experienced fixed income-oriented transfers.  

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GIC/stable value funds received nearly half (46%) of the inflows, with $254 million transferring into this asset class. Bond funds received net transfers of $177 million, which represented 32% of the inflows.   

As international markets rallied (the MSCI EAFE Index rose 9.5%), international funds also saw inflows of $92 million, which reversed the trend of outflows since February this year, Hewitt said.  

Company stock funds experienced the largest outflows of the month, with $280 million transferring out of this asset class. Large U.S. equity also had significant outflows of $162 million, followed by small U.S. equity ($70 million). 

(Cont...)

Participants Contributed to Equities  

The Hewitt 401(k) Index showed participants' overall equity allocation was up by 1%, to 57.3% at the end of July, due to strong stock market performance. Employee-only equity contributions were virtually unchanged, with 60.1% going into equities, versus 60.2% in June.  

Lifestyle-premixed funds took in 24.5% of employee-only contributions, followed by GIG/stable value funds (19.16%) and Large U.S. equity funds (17.34%).   

On average, 0.03% of balances transferred on a net daily basis in July. There were above normal-levels of transfers on three days during the month.  

The Hewitt 401(k) Index is here. 

Compliance August 16, 2010

Regs Exempting Plan Loans from Disclosure Requirements in Effect

New Federal Reserve regulations exempting most plan loans from federal Truth in Lending Act (TILA) disclosure requirements became effective in July. 

Reported by

According to an article in Deloitte’s Washington Bulletin, exempted from TILA disclosures as of  July 1, 2010, are participant loans made according to Internal Revenue Service regulations from fully vested funds in a participant’s 401(a), 403(b), or 457(b) account.

When they originally announced the move last year, Fed officials noted that retirement plan loans to participants are substantially different from other loans because there is no third-party creditor imposing finance charges. The interest and principal are also reinvested in the participant’s own account. (see Plan Loans Exempt from Truth-in-Lending Disclosure Requirements).

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Deloitte pointed out that plans governed by the Employee Retirement Income Security Act (ERISA) still must include in the summary plan description a disclosure of any fees that may be charged against the participant or beneficiary (or their individual accounts) as a condition to the receipt of benefits. Participant loan fees would fall within this category.

 

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