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Alight Solutions: 401(k) trading activity drops to record low in 2017

The Dow Jones industrial average rose 25% in 2017 and flirted with crossing 25,000 in the final trading days of the year.

A surging stock market and rising popularity of target-date funds were the primary reasons 401(k) trading activity reached a record low last year, according to Alight Solutions, the record keeper that has published its 401(k) index for 20 years.

"For the most part, everyone's balance went up," said Robert Austin, director of research. "When markets go down, there's more trading."

The Alight Solutions index showed that 1.45% of total plan balances were traded last year vs. 2.13% in 2016. Mr. Austin said the growth in target-date funds also meant less trading by 401(k) plan participants. Target-date funds accounted for 27.2% of plan assets at year-end 2017 vs. 24.1% at the beginning of 2017.

Last year, 43% of contributions went into target-date funds, according to an analysis posted on the Alight Solutions website. The website said the target-date category also includes assets in target-risk funds for companies that don't have target-date funds. This group accounts for less than 10% of the total category.

The Alight Solutions index tracks daily trading by more than 1 million 401(k) participants who have more than $150 billion in aggregate assets in 13 asset categories. The index "reports the flow of money into and out of these asset classes and relates the data to daily stock market activity," the website said. "This provides a glimpse into how specific world and market events, such as a stock market dip, affects 401(k) plan participants' degree of confidence in the market and their investment decisions."