Participants in 401(k) plans are using balanced approach in their portfolios rather than completely shunning stocks to avoid the turmoil of up-and-down markets, according to a recent national report.

The report, released jointly by the Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI) in December, defined equities as including equity funds, company stock, and the equity portion of balanced funds.

The average 401(k) account has moved away from a high concentration of stocks, according to the report. In 2010, 40 percent of 401(k) participants invested between 80 percent and 100 percent of their accounts in equities. That is down from 2000, when 54.1 percent of participants invested with those high-equity concentrations.

Meanwhile, the portion of 401(k) participants with no stocks in their portfolios also declined. The report found 11.8 percent of participants had no equity investments in 2011 — down from 12.7 percent in 2000.

EBRI and ICI developed the report, titled “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2010” using a database of 23.4 million 401(k) plan participants. Those participants were in 64,455 employer-sponsored plans holding a total of $1.4 trillion in assets. 

The database included information provided by a range of record keepers and covers plans of various sizes with a variety of investment options. Database records were encrypted to conceal employers’ and employees’ identities.

EBRI is a Washington, D.C.–based not-for-profit organization focusing on economic security and employee benefits. ICI, which is also based in Washington, D.C., is a national association of U.S. investment companies that includes mutual funds, closed-end funds, unit-investment trusts, and exchange-traded funds.

The organizations reported that 401(k) participants are relying heavily on target-date funds. Those funds are designed to rebalance over time, changing focus from growth to income as a target date — usually coinciding with one’s expected retirement date — approaches.

Target-date funds were offered in about 70 percent of plans at the end of 2010, according to EBRI and ICI. And 53 percent of workers who were offered target-date funds held them at the end of 2010. 

But the funds’ popularity may not be the result of employees’ active choices, according to Jack VanDerhei, EBRI research director and an author of the report. 

“I think the plan-design aspect of this has more of an influence on what you’re seeing than anything else,” he says in a telephone interview. “And by plan design I mean what the sponsor is choosing for a default investment.”

Many employers chose target-date funds as a default investment for employees being automatically enrolled in 401(k) plans in the second half of the decade, VanDerhei says. And a large number of employees simply leave the money in those funds, he adds.

“There’s a very high probability that the investments they’re in, especially if it’s a target-date fund, they’re in them because the employer put them there,” VanDerhei says.

Recently hired workers in their 20s with 401(k) plans — who are likely to be automatically enrolled in those plans — leaned
heavily on target-date funds, the report found. Among such workers, target-date funds made up 35 percent of overall account balances. That is up from 31 percent in 2009 and 16 percent in 2006.

The report also found that young 401(k) participants demonstrated a high commitment to stocks. In 2010, 60.4 percent of plan participants in their 20s had more than 80 percent of their accounts in equities, up from 55.3 percent in 2000.

Target-date funds could explain that commitment, VanDerhei says. The funds would be more aggressive for younger workers, meaning they would likely rely heavily on stocks, he says.

Other findings

The survey found that 401(k) account holders also strayed away from company stock. The share of accounts invested in company stock slipped to 8 percent in 2010, down from 19 percent in 1999.

“After Enron in the early 2000s, I think a lot of employees finally figured out what the word ‘diversification’ means,” VanDerhei says. “A lot of employers also stopped forcing the employer match into company stock.” 

In addition, the EBRI report found that a steady portion of 401(k) participants had loans outstanding against their 401(k) accounts at the end of the decade. In 2010, 21 percent of participants eligible for loans had outstanding loans. That portion was also 21 percent in 2009, and it was 18 percent at the end of 2008.

But participants’ 401(k) loan balances took a slight dip in 2010. On average, outstanding loans equaled 14 percent of remaining account balances at the end of 2010. Outstanding loans amounted to 15 percent of remaining balances at the end of 2009 and 16 percent in 2008.       

SALINA  —  Kenneth Walsleben does not know how to twist time. Yet it sounds like his new business will send clocks spinning in all different directions.

The business, Hamilton Capital Resources, LLC, aims to allow clients to take longer to pay their vendors — while simultaneously shortening the amount of time it takes those vendors to receive payments from the very same clients.

“We think there’s a really big marketing opportunity here,” Walsleben says. “There are vendors out there that want to get paid promptly that the client just can’t pay promptly.”

Hamilton Capital Resources, which is launching this month, will operate a program called Early Vendor Payment (EVP) to position itself as a payment agent between clients and vendors. 

EVP will issue payments to vendors instead of those vendors’ clients making payments. Clients will then repay EVP rather than paying vendors directly.

EVP will pay vendors quickly — the service will send funds three days after a client approves an invoice. But clients will not need to pay EVP until much later — for example, 60 days after the client receives a vendor invoice, Walsleben says.

“A vendor, if he gets paid on day 13 as opposed to day 60, doesn’t have to have as much cash on hand,” he says. “If [I am a client and] I want to delay my payables, this is a good way to do it.”

EVP will charge vendors who opt to use the service. The fee will be based on the amount of time between EVP issuing payment to a vendor and receiving payment from a client. It will range between 1 percent and 5 percent but will typically be 2 percent to 3 percent, Walsleben estimates.

“Because the vendor’s the one getting the benefit, they’re the one paying the service fee,” he says. “My fee to them will approximate what they’re already willing to give to their customer. Most vendors are offering 2/10 net 30 on their invoices.”

The notation “2/10 net 30” means vendors are willing to give clients a 2 percent discount if they pay an invoice in 10 days, but that they expect full payment if a client issues funds in 30 days.

Clients will be responsible for late fees if they do not pay by an invoice-specified deadline. The deadline and fees would be spelled out in the invoice.

Walsleben is a principal of Hamilton Capital Resources, LLC along with Michael Howe. The two men are also principals of The Hamilton Group, Inc., which is headquartered in Salina and also has offices in California and Massachusetts.

The Hamilton Group is a firm offering accounts-receivable factoring, a type of financing where a business sells accounts receivable, or invoices, to a financier known as a factor. 

The factor then sends the business a percentage of the invoice amount, typically 70 percent to 80 percent. Once the factor receives invoice payment, it pays the seller the remainder of the invoice — minus a financier’s fee.

The Hamilton Group and Hamilton Capital Resources will be separate companies that share ownership, Walsleben says. Hamilton Capital Resources will not be a subsidiary company, he says.

The two businesses will share The Hamilton Group’s leased 1,200-square-foot office at 100 Elwood Davis Road in Salina. Walsleben expects Hamilton Capital Resources to require about 1,200 square feet of additional space within a year. There is space to expand in the building at Elwood Davis Road, and the companies will likely operate in side-by-side offices by next year, Walsleben says. 

They will also share employees as Hamilton Capital Resources and EVP launch. The Hamilton Group has a total of 10 employees, all full time, Walsleben says. He anticipates adding five to six employees dedicated to Hamilton Capital Resources as EVP grows.

The EVP product will likely operate with $8 million to $10 million in outstanding payments at any one time by the end of next year, Walsleben says. He did not discuss revenue, but thinks the business will quickly eclipse The Hamilton Group, which processes about $40 million annually in factoring and is holding steady, he says.

“I would expect EVP to be bigger than Hamilton in two years,” Walsleben says. 

EVP will work in any industry in any part of the country, according to Walsleben. But he is currently marketing it to hospitals in the Northeast. He plans to continue to focus on the health-care industry as the product launches.

“That’s where nobody seems to get paid in a timely way,” he says.

Walsleben plans to focus on pitching the service to clients such as hospitals, rather than vendors. Clients would then be able to offer the service to their vendors as an option, while vendors would be able to opt to be paid without EVP.

Still, Walsleben and Howe are prepared to market EVP to both clients and vendors. They set up separate websites and printed different literature for each party.

Walsleben declined to specify startup costs for EVP. The Hamilton Group has funded startup costs for Hamilton Capital Resources and EVP, and the new business will repay the loan from its operating revenues, he says. Other sources of funding include private bank financing and investors holding subordinated notes.

Hamilton Capital Resources was incorporated in Florida because Walsleben and Howe used Boca Raton, Fla.–based law firm Ullman & Ullman, P.A. to set up the company, Walsleben says. But, the company’s headquarters is in Salina.

EVP’s payments will not be counted as debt against clients, and it will not deal with liens. Instead, it will use credit insurance as protection against a client not paying. The French company Euler Hermes is providing credit insurance.

“Because we’re being judicious about who our clients are going to be, that is one problem I don’t expect to deal with,” Walsleben says.