Defined contribution plans' investments in enhanced indexing — especially equity strategies — skyrocketed during the year ended Sept. 30.
The DC plans in Pensions & Investments' annual survey of the 200 largest retirement plans reported overall enhanced index investments surged 112% to $7.9 billion as of Sept. 30. The gain was spurred mostly by increased participant contributions, industry insiders said, as employees sought the bump in returns enhanced approaches can bring.
By far, equities account for the lion's share of enhanced indexing — $6.5 billion, a 115% jump from a year earlier. Fixed income rose to $1.4 billion, a 97% increase.
Plans with the biggest gains in enhanced equity include the New York City Retirement Systems, a whopping 197% jump to almost $3 billion; American Airlines, Inc., Fort Worth, Texas, up 29% to $715 million; and Southern Co., Atlanta, up 28% to $320 million.
Leading the plans investing in enhanced indexed bonds is the Evanston, Ill.-based General Board of Pensions and Health Benefits of the United Methodist Church, with $1.1 billion, up 26% from the previous year.
Enhanced index funds make a lot of sense for defined contribution plans, and participants are paying more attention to them, said William Quinn, president of American Beacon Advisors, which oversees American Airlines' $9.6 billion DC plan.
"We offer it because some participants want it. There has been more interest," he said. The American Airlines' option, which is managed by State Street Global Advisors, Boston, also gained assets when the advisory committee to the pilots' DC plan decided to move more assets to enhanced index from traditional index funds. Mr. Quinn would not elaborate.