What is the Hewitt 401(k) Index?

The Hewitt 401(k) Index is the first and only index of its kind to track the market confidence level and investment activity of 401(k) participants at large corporations exclusively. Based on data collected daily from 1.5 million 401(k) participants with nearly $110 billion in collective assets, the Hewitt Index tracks the daily transfer activity among 13 asset classes (including self-directed window) relative to an average of previous transfer activity as well as stock market activity. The result is a glimpse into how specific market events affect 401(k) plan participants’ degree of confidence in the market and their investment decisions.

How does Hewitt create the Hewitt 401(k) Index?

Hewitt creates the Hewitt 401(k) Index through a four-step process:

(1) First, Hewitt computes the total amount of money moved by participants between 13 asset classes on a daily basis (activity level). In this process, we count the dollars moving between asset classes only once (dollars are counted moving into and out of self-directed window; but transfers within self-directed window are not counted). Each of these amounts is then restated as a percent of the total dollars (the day’s beginning balance) in all 13 asset classes.

(2) Next, Hewitt computes an average of these daily numbers for the last 12 months, starting on August 1, 1997 and up to the day before the index is computed. This average represents "normal" activity and is computed on a rolling basis, changing daily as the Index moves forward.

(3) The Hewitt Index represents the ratio of transfer activity on a given day relative to the average computed in step (2).

(4) Finally, Hewitt adds a directional indicator. An "(eq)" following the Index indicates the majority of money on that day flowed into equity funds (and out of fixed income funds), while an "(fi)" delineates the opposite – over half of the money transferred that day moved into fixed income funds and out of equity investments (this does not include the direction within self-directed window).

How should the Hewitt 401(k) Index be interpreted?

A Hewitt 401(k) Index reading of 1.0 is equal to a day of average trading activity (based on transfer activity over the last year). A Hewitt Index reading higher than 1.0 indicates a day of higher than normal transfer activity, while a Hewitt Index reading less than 1.0 (i.e. .45) indicates lower transfer activity than normal. An "(eq)" following the Index indicates the majority of money flowed into equity funds, while an "(fi)" indicates that most money moved into fixed income funds.

For example, a Hewitt Index of 1.8(eq) indicates that the transfer activity for that day is 80 percent higher than usual and that the majority of money went into equity funds. Likewise, a Hewitt Index of .60(fi) indicates a 40 percent lower than usual activity level, with money flowing into fixed income funds. In addition to the daily Index reading, the Index Web Site has monthly allocation, contribution and transfer graphics, which will help identify trends. Also, the detailed data provided on the Hewitt 401(k) Index Web Site makes it easy to see which asset classes gained or lost funds each day and each month.

Is the Hewitt 401(k) Index representative of all 401(k) investors?

No. The Hewitt 401(k) Index is representative of employees of large plan sponsors (over 5,000 employees) that offer daily valuation of plan balances and daily trading capabilities to employees.

Where does Hewitt obtain the data to create the Hewitt 401(k) Index?

Hewitt Associates is the largest outsourcing provider in the U.S., providing all major benefit programs to employees, including pension, 401(k), and health care. Currently, the firm delivers benefits to over 17 million employees and dependents. The Hewitt 401(k) Index is created from a subset of that larger group. As a leader in technology, Hewitt has made a commitment to provide seamless and integrated technology solutions to clients. Technology makes it possible to provide daily valuation and gather the daily transfer information necessary to create the Hewitt Index.

Why did Hewitt create the Hewitt 401(k) Index in the first place?

With over a trillion dollars currently invested in 401(k) plans, 401(k) participants have become a market force. Of that market, large employers represent 52% of the total assets in plans, and Hewitt currently provides benefit administration to over 40% of the large employer market. Hewitt created the Hewitt 401(k) Index to provide some insight into the investing habits of 401(k) participants. The Hewitt Index makes it possible to determine if 401(k) participants behave differently than other investors. In addition, the Hewitt Index helps employers evaluate whether or not investment education is having an impact on the behavior of participants and allows employers to target investment communication to "at risk" groups.

The largest independent provider of 401(k) services in the U.S., Hewitt does not manage mutual fund assets itself and can provide an impartial overview of participant activity across a variety of fund types.

How do people access the Hewitt 401(k) Index?

The Hewitt 401(k) Index can be viewed online here.

Who uses the Hewitt 401(k) Index and how?

There are multiple ways to use the Hewitt 401(k) Index. Plan sponsors, money managers, and academicians find it a useful data source. For example, 401(k) plan managers use the Hewitt Index to compare the behavior of participants in their plan to that of a broad universe. This knowledge helps plan sponsors tailor education and communication efforts and measure their impact. In addition, the Hewitt Index makes it possible to determine general and specific investment trends on a daily, monthly, and annual basis.

How often is the Hewitt 401(k) Index updated online?

The Hewitt 401(k) Index is updated weekly. Monthly observations are posted by the 5th business day of each month.

What other information does the Hewitt 401(k) Index offer?

The Hewitt 401(k) Index provides the following information in addition to the daily Hewitt Index reading:

• Monthly asset allocation charts (among the 13 asset classes)
• Monthly new contribution charts (among the 13 asset classes)
• Monthly transfer charts (among the 13 asset classes)