How to use investment and account data to help create better investors

Part of our State of the Participant 2023 series: insight and tools to help participants on their journey to retirement

How the markets performed

In our study, we looked at participant investment behavior and returns among participants in our open-architecture DC plans. Our data covered the period beginning June 30, 2022, and ending one year later—a period of overall growth for key markets overall but with episodes of volatility. 

Major market index returns for June 30, 2022–June 30, 2023

The equity markets were volatile through the second half of 2022, before finally taking a welcome upward bounce early in March 2023. This resulted in annual gains for all our equity benchmarks. Conversely, bond returns for the period were flat to slightly negative due to several factors, including the impact of rising interest rates on the market value of previously issued bonds.

Of course, both equity and fixed-income performance can be important to DC plan participants, since age-based portfolio models typically call for varying combinations of both asset classes.

How participants responded

Against this market backdrop, we measured the investment exchanges made by our DC plan participants from the same time period. 

Investment inflows, outflows, and net flows due to participant exchanges (in millions)

Target-date and stable value funds experienced the largest net flows

Looking first at inflows, we discovered that more money was exchanged into target-date, stable value, U.S. equity, and growth and income funds than other options. Stable value and target date were the biggest net recipients of participants’ exchange dollars. More specifically:

• Money flowed into stable value funds¹ in all four quarters, with the biggest net flows in Q3 2022. This coincides with a significant dip in equity values in late September/early October of last year.
• Outflows from money market funds aligned with the climb in U.S. stock prices that began in Q2 of this year—while target-date funds² followed just the opposite pattern, with significant second-quarter inflows.
  

What happened to participant balances?

Though primarily meant to help individuals evaluate the performance of their own portfolios, we were able to analyze trends in personal rates of return among all the DC plan participants we service on our open-architecture platform.

We discovered that, across all age groups, personal rates of return (which consider flows in and out of a participant’s account) averaged from about 7% for those 60 and older to just over 10% for those 40 and younger. This reflects the combination of the stock markets’ performance and the typical recommended mix of equities and bonds by age group.

If personal returns are positive, it logically follows that balances will increase; our research affirmed this.

The average account balance rose in each age group, in rates that ranged from 12.1% for participants under 30 to 1.7% for those 60 and older.

Comparative average account balances by age, June 30, 2022, and June 30, 2023

Regarding account balances, averages tell only part of the story. Over half of participants hold current DC plan balances under $10,000—meaning losses due to severe market volatility, or leakage due to a large plan loan or in-service withdrawal, could put a relatively large portion of their assets at risk.

Distribution of DC account balances by amount, June 30, 2023

In evaluating your participants’ progress, it’s important to delve into the specifics. Younger participants with a four- or five-figure balance may be well on their way to building the retirement assets they’ll need. But then again, averaging in a block of six-figure accounts can belie the fact that some participants may be lagging—and that’s a fact that plan fiduciaries need to know.

Using investment and account balance data to help shape retirement outcomes

Because it’s a fundamental fiduciary duty, retirement plan professionals and sponsors tend to pay close attention to designing their investment architecture, along with selecting and overseeing the investment lineup. Even if a consultant is involved in these important duties, you could still take steps to help monitor how well your participants are investing as part of your general plan management approach.  

Here are some tools that can help.

Tools for measurement

• Talk to your recordkeeper about the possibility of using enrollment and fund-exchange data to help track participant investment trends
• Use multilevel account balance data (i.e., overall balances and balance distribution breakouts) for a more useful view

Tools for improvement

• Dedicate part of your communication and education strategy to appropriate investing—factoring in both fundamental concepts and the current market/financial environment
• Make market and investment education readily available in various formats—and use data to target these services where the need is highest
• Ensure your investment lineup includes guidance-rich options appropriate for your participant base—including target-date funds and managed accounts

Add useful investment insight to your retirement readiness toolbox

So much of a DC plan participant’s retirement readiness depends on well-informed investing. And one way for plan professionals and sponsors to help their participants become better investors is to take the journey with them—to be aware of what their holdings are, what kind of changes they’re making, and how it’s affecting their progress.

Are you using available data to gauge the investment approaches of your participant base, shape your educational and communication approach, and help assess your investment lineup? If not, talk to your recordkeeper about what information is available and how you can put it to work.

For complete information about a particular investment option, please read the fund prospectus or offering memorandum/trust document. You should carefully consider the objectives, risks, charges and expenses before investing. The prospectus or offering memorandum/trust document contains this and other important information about the investment option and investment company.  Please read the prospectus or offering memorandum/trust document carefully before you invest or send money. Prospectus or offering memorandum/trust document may only be available in English.

1 Stable value portfolios typically invest in a diversified portfolio of bonds and enter into wrapper agreements with financial companies to prevent fluctuations in their share prices. Although a portfolio will seek to maintain a stable value, there is a risk that it will not be able to do so, and participants may lose their investment if both the fund's investment portfolio and the wrapper provider fail. 2 The target date is the expected year in which investors in a target-date portfolio plan to retire and no longer make contributions. The investment strategy of these portfolios is designed to become more conservative over time as the target date approaches (or, if applicable, passes) the target retirement date. Investors should examine the asset allocation of the portfolio to ensure it is consistent with their own risk tolerance. The principal value of your investment, as well as your potential rate of return, is not guaranteed at any time, including at, or after, the target retirement date.

All data is from our open-architecture platform. 2022 data reflects John Hancock Retirement Plan Services LLC’s 1,756 plans, 1,440,374 participants, and $95,176,036,431 in assets under management and administration (AUMA) as of June 30, 2022. 2023 data reflects John Hancock Retirement Plan Services LLC’s 1,966 plans, 1,511,835 participants, and $100,319,359,778.24 in AUMA as of June 30, 2023.

The projected balances at retirement age and income replacement ratios within the dashboard are hypothetical and for illustrative purposes only. Results are not guaranteed and do not represent current or future performance of any specific account or investment. Due to market fluctuations and other factors, it is possible that investment objectives may not be met.

Investing involves risks, and past performance does not guarantee future results.

It is your responsibility to select and monitor your investment opions to meet your retirement objectives. You should review your iinvestment strategy at least annually. You may also want to consult your own independent investment ror tax advisor or legal counsel.