Executives at defined benefit and defined contribution plans are grappling with large transfers into fixed income in the aftermath of the Sept. 11 terrorist attacks.


  • Some participants in the $2.6 billion defined contribution plan at International Paper Co., Purchase, N.Y., reacted by moving assets into company stock from other equity options, said Robert Hunkeler, V.P. of trust investments. A smaller group moved assets into stable value and bonds from equities, he noted.
  • At Compuware Corp., Farmington Hills, Mich., there's been "a definite movement from equity to fixed income" in the company's $325 million 401(k) plan, said Joe Schuster, manager of qualified plans. They did not move money out of company stock: "Participants weigh company stock differently," Schuster said.
  • On Sept. 17, the day the markets reopened, Hewitt Associates' 401(k) index recorded the highest investment transfer activity since its inception in August 1997 -- nine times the normal level.

The index, which tracks the daily transfer activity of nearly $71 billion in 401(k) assets, recorded daily net transfer activity of 0.58% of total balances, or $400 million transferred. Those who transferred assets moved to stable value or guaranteed investment contracts from equities.

"We saw movement corresponding to the level of market decline," said Lori Lucas, consultant with Hewitt Associates of Lincolnshire, Ill. By Sept. 25, transfer activity was down to normal levels, but it increased again as the market declined the next day, Lucas said. "This was unusual because 401(k) plan participants are normally hands off," she said.

‘We're getting clobbered’

Meanwhile, pension fund executives were reeling from the drubbing their funds took in the stock market the week of Sept. 17.

Frank Foy, CIO at the $6.5 billion New Mexico Educational Retirement Board, Santa Fe, summed up the prevailing sentiment: "We're getting clobbered. Stocks are down, and so are interest rates, which hurts, too."

Foy's staff rebalanced the pension fund and added $20 million to its internally managed S&P 500 index fund.

Many other pension funds are rebalancing as well. The $9 billion Illinois State Board of Investment, Springfield, planned to rebalance the pension fund, bringing it closer to its policy target by adding 2% to 3% of assets to international equities, said Ronald Schmitz,CIO. The $85 billion Florida State board of Administration, Tallahassee, invested more than $500 million in equities "to return the fund to its policy targets in as orderly a fashion as possible," said Coleman Stipanovich, deputy executive director. "We will probably add more."

Others bought equities when the market tanked. The $35 billion Ohio State Teachers Fund, Columbus, bought $100 million in equities, evenly divided between internally managed domestic and international index funds, said Herb Dyer, executive director.

The five New York City retirement funds invested $800 million in their passively managed Russell 3000 index fund. The New York State Common Retirement Fund, Albany, with $112 billion in assets, invested more than $250 million in U.S. equities right after the stock markets reopened, as part of a plan to invest a total of $1 billion in the asset class.

The $22 billion Retirement Systems of Alabama, Montgomery, also added to equities, putting around $100 million into internally managed active equity funds benchmarked to the S&P 500 and S&P 400, said Darren Schulz, CIO. "We cherry-picked names and added to companies in the financial services sector, as well as oversold names in the casualty and property insurance business." Funding came from cash.

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