January 2001

 

Private Trusteed Retirement Plan Assets — Second Quarter 2000

  • As of the second quarter 2000, total assets in private trusteed pension plans amounted to $4.8 trillion. Defined contribution plans accounted for $2.5 trillion, or 53.4 percent of the total, and defined benefit plans $2.2 trillion, or 46.6 percent of the total. Total assets in defined contribution plans surpassed total assets in defined benefit plans in 1997.
  • Trusteed pension funds are managed by a trustee appointed by the plan sponsor. The trustee may be an employee of the plan sponsor or a bank or trust company. Contributions are placed in a trust set up exclusively for the pension plan. The trustee is legally responsible for ensuring that the fund's assets are managed solely in the interests of the plan participants. In a defined benefit plan, the investment risk is borne by the plan sponsor, who must adjust contributions according to any actuarial losses (or gains) that occur. In a defined contribution plan, plan participants, who often have some say in the investment of contributions to their individual accounts, bear the investment risk; investment performance is reflected in the balances of their individual accounts.

Defined Benefit Plans

  • Direct equity holdings of defined benefit plans declined from 1985 (when the value of these assets totaled $336 billion, or 41.3 percent of all defined benefit plan assets) to 1988 (when the value of these assets was $298 billion, or 33.8 percent of all defined benefit plan assets). Since 1988, direct equity holdings have increased in dollar amount and percentage of all defined benefit plan assets. As of second quarter 2000, direct equity holdings of defined benefit plans were valued at $1.198 trillion, accounting for 54.0 percent of total defined benefit plan assets. This represents a decline from first quarter 2000, when direct equity holdings in defined benefit plans totaled $1.253 trillion, accounting for 55.4 percent of total assets.
  • Direct bond holdings have shown an inverse relationship to direct equity holdings. From 1985 through 1988, as direct equity holdings declined as a percentage of total defined benefit plan assets, direct bond holdings increased. In 1985, 29.4 percent ($240 billion) of total defined benefit plan assets were in bonds. This percentage increased to 35.2 percent ($311 billion) in 1988. After 1988, direct bond holdings declined as a percentage of total defined benefit plan assets, dropping to 22.6 percent ($501 billion) by second quarter 2000.
  • Total earnings in defined benefit plans were strong throughout the 1990s. The only years during the 1990s when total earnings were less than $100 billion were 1990 (losses of $36.8 billion), 1992 ($63.6 billion), and 1994 ($74.2 billion). In 2000, total earnings of defined benefit plans slowed. First quarter 2000 produced total earnings of only $80.7 billion, while in the second quarter total losses amounted to $25.5 billion.

Defined Contribution Plans

  • Among defined contribution plans, other assets have grown steadily since 1985 (the Employee Benefit Research Institute defines other assets as assets held in mutual funds). In 1985, other assets were valued at $417 billion, or 31.0 percent of total defined contribution plan assets. By second quarter 2000, these assets had grown to $1.288 trillion, or 50.7 percent of total defined contribution plan assets.
  • The proportion of direct equity holdings of defined contribution plans held relatively steady from 1985 through second quarter 2000. In 1985, direct equity holdings accounted for 38.1 percent ($159 billion) of total defined contribution plan assets. By second quarter 2000, direct equity holdings accounted for 39.7 percent ($1.010 trillion) of total defined contribution plan assets.
  • Direct bond holdings in defined contribution plans showed a sharp decline from a high of 22.2 percent ($106 billion) in 1986 to 4.3 percent ($109 billion) in second quarter 2000.

For more information, contact Ken McDonnell, (202) 775-6342, or see EBRI's Web site at www.ebri.org.

Source: EBRI Pension Investment Report December 2000.