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™.
Positive Fourth Quarter to End a Tough Year
The Callan DC Index™ rounded out the year with a strong finish, returning 3.50% in the fourth quarter. The rebound helped offset third quarter losses, among the worst ever in the Index’s ten-year history. This strong finish did not keep the DC Index out of negative territory for the year; a calendar year return of -0.34% was the weakest since 2011.
The Age 45 Target Date Fund—the average of target date funds that would be selected by participants age 45 and retiring at age 65—beat the DC Index for the quarter, but underperformed it by 1.03% for the year. Both results were driven by the fact that the Age 45 Target Date Fund has a higher allocation to equities than the average defined contribution (DC) plan: 74% for the Age 45 Target Date Fund versus 66% for the average DC plan.
This year marks the tenth anniversary of the Callan DC Index. Since inception, the Index’s annual return is 5.18%, compared to the Age 45 Target Date return of 5.25%.
Starting this quarter, Callan is revising the methodology for our target date fund comparison, eliminating retail share classes from the Age 45 Target Date Fund benchmark. The Age 45 Target Date Fund is a composite representing the target date fund vintage that a 45-year old participant (the approximate age of the typical DC participant) would have held in any given year. Currently that is the 2035 target date vintage.
Further, the Age 45 Target Date Fund consists of only institutional share class managers. The difference in expenses between the retail and institutional versions of the Age 45 Target Date Funds are stark: in 2015, the median difference was 25 basis points. Callan believes that eliminating retail share classes from the Age 45 Target Date Fund benchmark is consistent with the institutional management of large DC plans.