Human Resources

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

Market Commentary

  • Defined contribution plan participants transferred monies from equities into fixed income investments as the stock markets dropped substantially during May, according to the results of the Aon Hewitt 401(k) Index™. Overall, 64% of the days had transfer activities that favored fixed income funds during the month. In sum, nearly $140 million moved from diversified equities (equity excluding company stock) into fixed income investments for the month. While this amount is substantial relative to typical Index movements, it represents just 0.10% of total assets tracked (about a third of typical net monthly transfer activity over the past 12 months).
  • Daily transfer volume also remained low compared to historical levels, particularly given the substantial market declines. On average, only 0.022% of balances transferred on a net daily basis in May, which is one of the lowest levels of transfers recorded in the history of the index. There were no days during the month that had above normal-levels* of transfers, whereas the typical month in the past year experienced three on average.
  • In May, nearly all equity asset classes experienced outflows, except employer stock funds. International equity funds lost $44 million (24%) in net transfers, followed by pre-mixed funds ($34 million, 19%) and small U.S. equity funds ($29 million, 16%).
  • Seventy percent of the transferred assets went into bond funds, netting an additional $126 million. Although major equity indices were down markedly, company stock funds experienced positive flows for the first month since September 2011, totaling $47 million
  • The overall equity allocation in the Index was down 1.5 percentage points to 58.9% at the end of May, from 60.4%1% at the end of April, due to both market weakness and changes in participant behavior.
  • Another measure of participant sentiment is discretionary contributions (employee only contributions). In total, 61.3% of employee discretionary contributions were directed to equities by the end of May, down from 62.2% in April.

The following tables show Hewitt 401(k) Index statistics and the returns of major market indices for the month of May 2012:

Index Returns

Dow Jones IA -5.82%
Russell 2000 -6.62%
Barclays Capital Aggregate Bond Index 0.90%
S&P 500 -6.01%
MSCI EAFE -11.48%
NASDAQ -7.19%
MSCI Emerging Markets Index (Net) -11.21%

Index Statistics

Number of Fixed Income Days 14
Number of Equity Days 8
Percent of Equity Days 36%

*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.

Index Data Reports

Relative Transfer Activity (May 2012)

Asset Allocation - Supporting Data (May 2012)

Balances in Stock Investments (May 2012)

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