Human Resources
401(k) Index &  Observations: 2016 Index Comments

2016 Index Comments


  • 401(k) activity was punctuated by a few spikes in trading activity followed by long lulls of low activity in 2016, a reflection of the uncertainty caused by world events such as Brexit and the U.S. elections. According to the Aon Hewitt 401(k) IndexTM there were 28 days of above-normal1 daily transfer activity in 2016—slightly less than the trailing 5-year and 10-year averages (32 and 35 days, respectively). Nearly one-third of the above-normal days of trading occurred in the weeks leading up to the U.S. Presidential election. For 2016, a net total of 2.13% of balances traded—slightly higher than the trailing five year average (2.02%), but below the trailing ten year average (2.59%).
  • Part of the light trading activity can be explained by the prevalence of target-date funds2, the largest asset class in the 401(k) IndexTM. The percentage of assets invested in target-date funds continued to climb in 2016, with target-date funds representing 24.1% of total assets as of year-end, up from 23.1% at the end of 2015 and only 16.5% of the assets in the Index in 2011.
  • Conversely, the percentage of assets invested in company stock continues to decline. At the end of 2016, company stock represented 8.7% of total assets—compared to 9.5% in 2015.
  • In general, participants tended to trade into fixed income funds from equity instruments in 2016. The first ten months of the year heavily favored fixed income, while November and December favored equities. Stable value funds received the most inflows while the majority of outflows came from company stock.

Asset Classes with Most Trading Inflows in 2016

Percent of Inflows Index Dollar Value ($ mil)
Stable value funds 47% $1,657
Bond funds 30% $1,032
Money markets funds 20% $692

Asset Classes with Most Trading Outflows in 2016

Percent of Outflows Index Dollar Value ($ mil)
Company stock 42% $1,466
Large U.S. equity funds 28% $975
Target-date funds2 13% $446

Asset Classes with Most Contributions in 2016

Percent of Contributions Index Dollar Value ($ mil)
Target-date funds2 40% $5,200
Large U.S. equity funds 19% $2,463

After reflecting contributions, trades, fund changes, and market activity, participants ended the year with 65.4% in equities, which is unchanged from 2015.

Percent of Balances in Aon Hewitt 401(k) Index

Asset Class Year End 2016 Year End 2015 Change
Money market 1.4% 1.5% (-0.1%)
Stable value 12.9% 13.2% (-0.3%)
Bond 8.5% 8.5% 0.0%
Balanced 2.6% 2.4% 0.2%
Target-date funds2 24.1% 23.1% 1.0%
Large Cap U.S. equity 22.6% 22.7% (-0.1%)
Mid Cap U.S. equity 5.0% 4.7% 0.3%
Small Cap U.S. equity 3.9% 3.6% 0.3%
International 7.1% 7.4% (-0.3%)
Emerging markets 0.5% 0.4% 0.1%
Specialty/sector 0.7% 0.8% (-0.1%)
Company stock 8.7% 9.5% (-0.8%)
Self-Directed Brokerage 2.1% 2.1% 0.0%

Asset Class Year End 2016 Year End 2015 Change
Equity 65.4% 65.4% 0.0%
Fixed Income 34.6% 34.6% 0.0%

Index Statistics 2016 YTD
Total Transfers as Percent of Starting Balance 2.13%
Number of Fixed Days 168 (67%)
Number of Equity Days 84 (33%)
Number of Above Normal1 Days 28

Market Observations

2016 represented a generally strong year for investors as many major asset classes saw positive returns. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) delivered positive returns for the majority of the year, but then pulled back towards the end of the year. U.S. Large Cap equities (represented by the S&P 500 Index) and U.S. Small Cap equities (represented by the Russell 2000 Index) saw moderate returns for the majority of the year before surging in the final two months. International equities (represented by the MSCI All Country World ex-USA Index) saw brief volatility in the middle of the year but rebounded to post moderately positive returns for International Equity investors.

The following table shows the returns of major market indices for the year ending December 31, 2016:

Indices Returns 2016 YTD
Bloomberg Barclays Capital U.S. Aggregate Bond Index 2.7%
S&P 500 Index 12.0%
Russell 2000 Index 21.3%
MSCI All Country World ex-U.S. Index (net) 4.5%

 1A “normal” level of relative transfer activity is when the net daily movement of participants’ balances, as a percent of total 401(k) balances within the Aon Hewitt 401(k) IndexTM equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months. A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity. A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and 2 times the average daily net activity of the preceding 12 months.

2Target-date funds also include the amounts in target-risk funds for companies who do not have target-date funds. The amount in the target-risk funds is less than 10% of the total.