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Volatile stock market drives 401(k) participants to trade more in 2018 — report

Participants in 401(k) plans traded more actively last year than in the past five years, according to research by Alight Solutions, which publishes monthly, quarterly and yearly indexes of 401(k) plan behavior.

Alight also said the level of above-normal trading in the fourth quarter of 2018 was exceeded by trading only in seven other quarters since the index's inception in 1997.

December's trading was the most active among any December in the history of the index, Robert Austin, the Charlotte, N.C.-based head of research, said in an interview Wednesday.

In December, Alight Solutions recorded nine of 19 trading days as abnormal. The average in December, as was the case in December 2017, was two abnormal trading days, he said.

"We tend to see a lot of activity when there are rapid declines in the stock market," Mr. Austin said.

For example, the S&P 500 index dropped 9% in December and 13.5% during the fourth quarter of 2018, according to an Alight report, issued Tuesday. This index counts results of 49 record keeping clients with assets of $190 billion serving more than 2 million participants.

For the full year, Alight reported 46 days of above-normal daily transfer activity. In 2017, there were only 13 above-normal trading days.

During the fourth quarter, there were 17 days of above-normal trading activity, "mostly concentrated around the days when the stock market lost ground," the Alight report said. By contrast, there were no abnormal trading days during the third quarter of 2018, Mr. Austin said.

According to Alight's trading formula, "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 Alight Solutions 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months."

Abnormal trading can be "high" or "moderate," according to the formula. "A high relative transfer activity day occurs 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," the formula says.

Despite the heavy above-normal trading in 2018, Alight also noted that net trades amounted to only 1.42% of total plan balances, the lowest yearly percentage in the history of the index. "This apparent discrepancy is attributed to the fact that many of the high trading activity days were concentrated around the beginning of the year and toward the end of the year, with trades moving in opposite directions, " the report said.

In the earliest days of 2018, participants moved to equities from fixed income securities. In the latest days of 2018, the movement was reversed. "In essence these (late-in-the-year) trades canceled out actions from the beginning of the year," the report said.