Human Resources

401(k) Index & Observations Monthly Details: June 2012

Market Commentary

  • June transfer volume remained extremely low among defined contribution plan participants, as the Aon Hewitt 401(k) Index™ found just 0.024% of balances transferred daily (net), on average. This is consistent with the previous month, well below the 12-month trailing average at 0.032%. Only two days had above-normal* levels of transfer activity.
  • Net transfers totaled $282 million, which, both as an amount and as a percentage of total participant balances, is also well below historical levels—surprising given June’s substantial market gains. 
  • Equity market prices rebounded amid reduced volatility, as plans to help re-capitalize European banking institutions emerged from the EU Summit and the United States Supreme Court largely upheld the Affordable Care Act. Despite the market rally, participant monies moved towards fixed income during June. Two-thirds of days (67%) once again favored fixed income asset classes—as 14 days had flows into fixed income versus 7 to equities. Overall, $253 million transferred out of diversified equities (equities excluding company stock) into fixed income investments. In total for the quarter, $467 million moved out of diversified equities, representing 0.34% of assets. By comparison, in the first quarter, $561 million (0.45% of balances) had transferred into diversified equities. 
  • In step with the quarterly trend, nearly all equity asset classes experienced significant outflows during June—except employer stock and self-directed window funds. Large U.S. funds lost the largest amount of $84 million (30% of transfers), followed by small U.S. funds ($60 million, 21%) and premixed funds ($42 million, 15%). International funds and balanced funds also had net outflows of $41 million and $22 million, respectively.
  • Conversely, all fixed income asset classes recorded net inflows for the month. GIC/stable value funds received the largest sum at $122 million (43%) in transfers, while both bond and money market funds also took in $75 million (32%) and $68 million (29%). Company stock funds also again experienced positive flows, up $10 million during June. 
  • In spite of the participant outflows, market movement supported the overall equity allocation in the Index. On average, equity exposure was up 0.3% to 59.3% at the end of June. This is down slightly from 60.6% at the beginning of the quarter.
  • Another measure of participant sentiment is discretionary contributions (employee only contributions going into the plan). In total, 61.0% of employee discretionary contributions were directed to equities by the end of June, which continued to decline from 62.6% in March.

The following tables show Aon Hewitt 401(k) Index™ statistics and the returns of major market indices for periods ending June 30, 2012:

Index Returns

   June 2012 Q2 2012 YTD
Dow Jones Industrial Average 4.05% -1.85% 6.82%
Russell 2000 Index 4.99% -3.47% 8.53%
Barclays Capital Aggregate Bond Index 0.04% 2.06% 2.37%
S&P 500 4.12% -2.75% 9.49%
MSCI EAFE Index 7.01% -7.13% 2.96%
NASDAQ Index 3.81% -5.06% 12.66%
MSCI Emerging Markets Index (Net) 3.86% -8.89% 3.94%

Index Statistics

  June 2012 Q2 2012 YTD
Average Daily Net Activity 0.024% 0.024% 0.024%
Number of Fixed Income Days 14 (67%) 40 (63%) 69 (55%)
Number of Equity Days 7 (33%) 23 (37%) 56 (45%)
Number of Above Normal Days 2 3 7

*A “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) Index™ 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 two times the average daily net activity of the preceding 12 months.

Monthly Details: Aon Hewitt 401(k) Index™ Observations