Callan: Markets boost average DC plan balance by 4.4%

The average defined contribution plan balance posted a 4.44% gain in the third quarter, virtually all of it because of market appreciation, according to the latest quarterly DC Index published by Callan Associates.

The average DC participant's balance grew 12.42% for the nine months ended Sept. 30.

Callan's latest quarterly analysis of plans noted that target-date funds continue to attract most of the new money in DC plans “as they have every quarter since 2006,” said the Callan DC Index report.

“Nearly 70 cents of every dollar that flowed into index asset classes during the third quarter went to target-date funds,” the report said. “This flow data reflects participant and plan sponsor contributions, withdrawals, transfer activity and any changes in the fund or asset class lineup.”

Lori Lucas, Callan's executive vice president and defined contribution practice leader, said in an interview that the target-date funds are benefiting from DC plan restructurings. When plan executives eliminate or change certain investment options, they will map the assets into target-date funds unless participants make specific choices, she said.

“It's not unusual for the assets to be mapped into the qualified default investment alternative, which is generally a target-date fund,” Ms. Lucas said. “Automatic enrollment is obviously feeding a lot of assets into target-date funds as well. It's hard to imagine anything short of a regulatory change that would slow the growth of target-date funds.”

Aside from target-date funds, the investment category with the next biggest inflow during the quarter was domestic fixed income, up 14.3%. Investment options with the biggest outflows were domestic large-cap equity, down 41%, and domestic small/midcap equity, down 20.7%.

The Callan DC Index is an equally weighted index tracking the cash flows and performance of 79 plans, most of which are 401(k) plans. The plans have a total of more than 800,000 participants and over $100 billion in assets.