The Callan DC Index™

Performance, asset allocation, and cash flows of over 90 large defined contribution plans representing approximately $150 billion in assets are tracked in the Callan DC Index™.

Quarterly Performance

Limping to the Finish Line

The Callan DC Index™ was dragged down by a weak equity market in the fourth quarter, when it plunged 9.65%, and finished 2018 off 4.87%. Although it is of cold comfort, the DC Index did outperform the typical Age 45 Target Date Fund for the year by over 2 percentage points. This outperformance is largely attributable to the DC Index’s lower equity allocation (69% vs. 76%). While the larger equity allocation of the Age 45 TDF detracted for the year, it has led to higher investment returns since inception (5.94% vs. 5.40%).

New Feature: Management Fee Data

The DC Fee Analysis chart shows the average total investment management fee by plan size, as well as the active and passive exposures. Fees for each fund (including mutual funds, collective trusts, and separate accounts), within a plan are asset-weighted to determine the average total fee. Fee data is updated annually during the fall.

Fees decreased across all plan sizes. This was driven by a combination of increased use of passive mandates as well as lower breakpoints and new lower fee vehicles and share classes for active options.

Growth Sources

Outflows: Pain on Both Ends?

With investment returns hurting overall plan balances, inflows typically buoy balances. However, as with the third quarter, flows for the fourth quarter were negative (-0.17%). Net flows will provide a critical measure for how effectively plans retain the balances of retiring workers.

Net Cash Flow Analysis

Now for Something Completely Different

For the first time in the history of the DC Index, the story surrounding flows does not involve the inexorable rise of target date funds. Rather, the fourth quarter marked a remarkable reversal (and one that forced much reaffirmation of data). Although target date funds continued to gain net inflows, it was stable value that experienced the largest inflows. Sharp reversals in the broad equity markets may explain some of this presumed flight to safety as money market funds also experienced inflows.

Turnover

Turnover Falls in the Fourth Quarter

Fourth quarter turnover (i.e., net transfer activity levels within DC plans) in the DC Index increased to 0.41% from the previous quarter’s sleepy measure of 0.13%. It remains well below the historical average at 0.61%.

Equity Allocation

Modest Decrease in Equity Exposure

Given the flight to safety of flows as well as market performance, the overall share of equity dipped from 71% to 69%, modestly above the Index’s historical average (68%).

Asset Allocation

Despite Bumpy Quarter, TDFs Continue to Ascend

With consistent inflows (though not nearly as large during the fourth quarter), target date funds ended the year with a 33% share of assets, up from 31% a year ago. For the year stable value also increased its share (10.7% vs. 9.1%) while both small/mid-cap and international equity dipped 1.3% and 1.0% respectively.

Prevalence of Asset Class

TDF Allocations Dominate

In the prevalence of funds table, the green bars indicate the prevalence of asset classes in DC plans and the blue bars measure the average allocation to that particular asset class when offered as an option.

Fewer plans offer company stock (21% vs. 28%) relative to a year ago, while stable value rose in overall prevalence from 71% to 75% for the year.

Questions on the Callan DC Index? Contact Greg Ungerman, DC Practice Leader, ungerman@callan.com