SCOTTSDALE, Ariz. - Availability of international equity investment options has shot up in the last year, according to the Profit Sharing/401(k) Council of America's 1997 survey.
The PSCA's 40th annual survey, which reports 1996 plan year data, indicates international equity investment funds now are available for participant investments in 66% of plans, a dramatic increase from 53% in 1995.
The survey was released at the PSCA's 50th national conference in Scottsdale late last month.
According to the PSCA, the increased availability of international equity funds represents "the most significant investment change" from 1995 to 1996.
Other highlights of the 1997 PSCA survey include:
Pre-tax participation rates increased to 84% in 1996 from 82.9% in 1995 and 71% in 1991.
Company contributions to plans declined to 4.8% of payroll from 5.9% in 1995. In 401(k) plans only, contributions declined to 2.6% of payroll from 3%.
The three most frequently offered funds for participant contributions are actively managed equity funds (79.1%); balanced funds (76.1%) and international equity funds (66%).
The percentage of assets invested in company stock declined to 34.1 in 1996 from 36.3% in 1995 and 38.8% in 1994.
The percentage of assets invested in stable value funds increased to 19.4% from 16.3% the previous year.
Plans offering daily valuation increased to 41.9% from 37.8% in 1995.
The percentage of plans using one family of mutual funds for all investments increased to 33.2% from 32.8%. The percentage of large plans (more than 5,000 participants) using one family of mutual funds for all investments increased to 29% from 27%.
David Wray, PSCA executive director, said the boom in international investment options is driven by the "explosion" of investment options being added by plan sponsors. He said the rising account balances of older participants now seeking diversification also contributed to the increased availability of international equity options.
"Among companies there has been an explosion of interest by plan sponsors to have this alternative in their plans. Most are sensitive to providing a wide range of choices to their employees. Clearly they are adding international (equities) as a true asset allocation and a diversity addition," said Mr. Wray.
"And a lot of funds are adding it because of participants asking for them. There is a lot of interest among older employees with large account balances."
Noting the steadily increasing participation rates in defined contribution plans, Mr. Wray credited enhanced education efforts by plan sponsors, as well as media coverage of market trends and mutual funds. "That and the market performance in recent years; all of the factors which affect participant participation are aligned," he said.
Mr. Wray also attributed the decline in company stock holdings to the addition of investment options by plans. Plans offering 10 or more investment choices increased to 16.2% from 11% in 1995. Plans offering nine options increased to 5.7% from 3.1%, and those with eight options increased to 11.3% from 8% in 1995.
Mr. Wray said company stock has been concentrated in plans of large publicly traded companies. As those plans increase the number of investment options, "money moves from five existing options, for example, to perhaps 10 . . . It is partly a reflection of companies adding investment funds. Participant demand is pushing the number of funds up as their account balances grow larger."
Another trend the survey showed is the shift from traditional bond and fixed-income funds back into stable value and guaranteed investment contract funds.
According to the survey, assets invested in corporate and government bond funds dropped to 2.5% from 6.1% in 1995, and money market fund assets declined to 2.9% of assets from 4.7%. Meanwhile, the percentage of fund balances invested in stable value assets increased to 19.4% from 16.3% in 1995.
Noting the unmistakable decline in the allocation to traditional fixed income, Mr. Wray said the shift might be the result of the relative outperformance of stable value assets compared with bonds for the past two years.
He said stable value funds now clearly "are the repository of fixed assets in these plans."
Another notable finding of the survey is the still relative lack of popularity of hybrid investment options, such as lifestyle, lifecycle and asset allocation funds.
These hybrid options, which only started to appear in defined contribution plans during the past three to four years, only have attracted 2.2% of plan assets, up from 1.2% in 1995. Hybrid investment options are offered by 12.1% of plans, up from 9.4%.