216 0 17 21 II 15 12 19 314 9 I0 2118 3 7 6845 EBRI Notes o benefit escalation formulas that are independent of inflation; best-performing plans are those in which the sponsor actively makes these contributions plus accrued investment3 earnings, and since investment earnings rate will find over time that the plan is an increasing burden on business index for pension bonds could plans probably to investbeinused realto TABLE TABLE est remove ate, 13 venture the risk cafrom pital, one and segment oil and of the gas patterns unexpected promulgates, do in not vestment maintains, show that earnings one and type enforces as aofroutine manager a code wayis to more ofmaintain effective businessthe than real ethicsanother. value among of differences may This approcarry ach statement would disadvantages between relies allow pension p noensi on t funds features oon nly funds oannd the like mutual to publishe maturity, accept funds. d lower sliquidity, ourcesrates citedand of but return transaction also than on hazardous. 2 However, the data do provide a basis for comparing broad perform better than others? Some of the plan characteristics that have been investment performance. Multi-employer , plans, _for example, T-41 do not have the rate of inflation was 7.2 percent. The median fund in that group therefore o ad hoc benefit adjustments; and I The mutual funds were surveyed in August 1984 by Forbes magazine. The decisions rather than delegating them to asset managers or avoiding them generally reflect inflation, the value of the participant's account will pcosts. pension over-the-counter artnerships The benefits. . sponsor Venture brokers of acapital and defined-benefit dealers. managersNASD plan areisalso isregistered liable urgingforwith the a specified the Department Securities level to portfolio, freeing SHORT- SHORT-the ANDANDsponsor's LONG-RUN LONG-RUN PENSION-FUND and TOTAL the RETURNS manager's INVESTMENT IN MUTUAL attention RETURNS FUNDS for actively Rather, costs. The they Investment most suggest importantmanagers thatfactor the individual dete mayrmining want manager the to investment purchase selected assets success is probably with or failure more such available on traditional investments if the investment furthers specific performance interviews with trends. several investment managers about some of the issues raised by option cited lost an inofathe verage incre past asing ofas0.3 possible employer percent influences of contributions its value on investment per in year. the event performance of poorinclude: investment pension fund data for the year ending in the third quarter of 1984 were BY TYPE OF MANAGER AND INVESTMENT MEDIUM 5 o supplements contingent on actuarial gains. 8 entirely. reflect inflationary expectations in asset markets. Furthermore, at compiled by Wilshire AssociatesTABLEinOFthe CONTENTS Trust Universe Comparison Service CONCLUSIONS managing of revise benefits the andprohibitions maximizing regardless yields of on incentive the in plan's othercompens performance, segments ation offor the soasset aportfolio. lowmanreturn agers. could make the and Department. Exchange Commission and performs its regulatory functions under the important disadvantages, to thebut success they of should the plan do sothan on the the type grounds of manager that such selected. assets fit the Short-run Long-run of WHAT social a pension IS Pension Apurposes. REALISTIC fund fund orperformance TARGET Such a mutual RaATEstrategy fund OF exceeded RETURN is itscould that FOR investment PENSION of tax mutual pension FUNDS? strategy. fundsparticipants This in the places short and a o the type of plan; performance. Rather, both contributions and benefits are bargained at set (TUCS). returns a returns b Short-run Long-run Learn from the winners Automatic adjustments and benefit escalation formulas require that the sponsor retirement, the participant can use plan proceeds to purchase an annuity. Hincreased ow DoMr. Pension Chairman, contributions Funds ICoam mpa necessary. re pleased with to Other submit Investors? this statement to the Department 2 on HOW DOAs Investment PENSION a soleFUNDS managers or major COMPAREappl element WITH aud OTHER these of aINVESTORS? efforts pension as fund's--or well as the any publi investor's cation -- of Investment Commission'sStrategy active oversight. The Financial Accounting Standards Board plan's Type of in Fund vestment strategy and itsReturns needs afor yield and liquidity, Returns b rather than premium retirees Pension-plan onto the pay pension for investment social planspending sponsor's managers thathandle responsibility benefits the society singleto largest at design large.the pool fund of funds and run. In the last year, mutual funds lost from 0.I percent to 10.8 percent intervals. o the If typethis of sponsor; makes multiemployer plans more conservative in their Performance data are important, but they do not provide an objective 2 Comparisons between mutual funds and pension funds are complicated by the Forbes stock fund composite -10.8% 17.5% Statement on realize fact thata return at thisatwriting, least equal data to computed the realon rate the same of growth basis plus were the not inflation available Since The the Department-funded annuity rate also study reflects whose anresults inflationare forecast, being presented the participant at these the How in Arevestment Pension management Funds Performing of private Against pension Inflation? funds. Private pension funds 3 now Forbes the (FASB) qualified The bond establishes sponsor andplan preferred ofaccounting asset a defined-contribution m stock anager standards regulations for the plan inaccounting 1984. will not Asset profession facemanthe agerssame and do need also not portfolio, Bank and trust howevdepartment er, index bonds could be less attractive. Currently, AAA By Compafring ar the the most performance important determ of inant pensionof funds an investor's with thperforman at ofce other is becauseAnother these justification assets serve aforsocial socialgoal investing that might argueshave thatnothing many alternati to do with ve maavailable nage it and for investment. the fund's investment The management managers of these to achieve funds concerns both the all plan's segments and depending o the on investment their investment manager; mix (Table I). Fixed-income funds posted the investment standard in management themselves for thanevaluating single-employer the performance plans, of one pensionwould funds.expect The to the author. That is, mutual fund data were available in both composite composite -0.I 10.2 Equity -0.3 14.5 rate. The Investment Performance of 6 hearings can form also and represents receive in quartiles some the inflation forbeginning the current protection of yeaar,mu incand h-needed retirement. only ineffort composite to ex form aminefor the the constitute What is a Realisti 29 percent c Target of total Rate of funds Return available for Pension for investment. Funds? The 5pensions to functions make under up the the Commission's shortfall in oversight. investment returns, but over time a corporate Forbes feel, howe balavnbonds er, ced th fund aare t cERISA omposite payinghas 9.8 imposed percent, unreasonable or -2.1 6.5 restrictions percentage 13.9 points on how over they retirement iof ts the Fixed asseteconomy. income mix. incomeAmong security. Poor both investment mutual returns funds 8.4 andcanpension increasefunds, the cost fi 10.8 xed-in burden come offunds the the sponsor's objectives. best institutional investments record, while offer investors stock not only like funds mutual social displayedfunds advantages theisworst difficult. but performance. also Inhigher theory, In returns. contrast, pension o the investment strategy. multi-employer plans to have lower investment earnings as a result of this standard or target should be based on the plan's goals. There are many target period 1973 to 1984. Pension fund data were available only in quartiles for Balanced 5.4 12.5 Pension Funds record Ifof the both benefit the poorer increase and the is better granted performers. automatically,Whilethesomeplan pension recognizes plans both Inflation the currentprotection year andin for defined-benefit the precedingplansfour is more years.complicated. However, Four EBRI they What Determines finance, intheturn, Performan areceimportant of Pension to the Funds? financial security of 755 million Conclusions manage inflation. poorly-performing Iftheir theIn establishment the clients' plan current could portfolios. high of reduce such real anthe interest Therefore, organization plan'sratecompensation deregulation environment, were feasible, value index of itcertain tobonds could the HOW CAN PENSION FUND PERFORMANCE BE IMPROVED? outperformed funds operate both in aequity longer funds time and horizon, balanced which portfolios should decrease over the their lastneed twelve for risk plan Among avon ersion. thetheinvestments sponsor, erode which the may retirement offer significantly income valuebetter of benefits, yields thand an many Type of pension plan funds earned positive net returns. The median fund invested in rates of return that could be set. For example, various bond and stock calculations of median performance data for mutual funds for the current year Investment counselor SOURCE: Laura R. Walbert, "1984 Annual Mutual Fund Survey," Forbes, August 27, this added cost as an increase in actuarial liability. The sponsor must set are differed performing relatively poorly, littleothers from are the not. compositeInformation data. Therefore, on the reasons the analysis for approaches can be used to protect the benefits of active participants against would workers, How investments Canimpose Pension retirees, will highFund not opportunity and necessarily Performan their cecosts dependents be increase on Impro investors. ved? demand and survivors. for them. The management I0 of employees. offer many 1984,This, advantages pp. in 68-119. turn, to could the Department lead to increased as wellpressure as to for plan wage sponsors increases and Equity While many pension funds outperform -0.4 both other investors15.5and the market months. ultimately traditional Debates Among increase investments, over mutualalternative reliance funds, at comparable fixed-in on investing the comeSocial risk, strategies fund Security are earned housing-related foraprogr pension negative am for funds total investments retirement have returnto fi liquidity xed-income andinstruments for short-term earned 8.3 performance. percent and Other balancedinvestors funds earned may be slightly under Union and jointly-trusteed funds do display lower investment returns indicesDefined-benefit have been developed plans are that commonly allow comparison believed to of one offerfund's the participant performance Before the U.S. Department of Labor in this section would probably remain fundamentally unchanged if all long-term Fixed income 8.3 10.5 aside data were funds available in each in timetheperiod same form. to fund this liability in accordance with the differences inflation: Index bonds in performance Office of Pension is sorely and Welfare needed.Benefit WhilePrograms many pension plans Pension-Fund these funds, therefore, Investment should Practicesconcern and Retirement everyone. Benefits 14 to compensate for the expectation of poor retirement income. For either ainvestment Returns Balanced Rather formaye nagers. than ar ending investing Currently, August in1984. the a 3.5 specialized exemption process investment can consist 13.7 instrument, of as many many pressure of and0.I venture perto cent, capital. show comp more aredimpressive with muchshort-term higher losses results.in equity Pensionand funds balanced also bunds have more as take benefits. a into than whole, account half Therefore, theasthe incidence muchrole if (Table plan of of the in2). vestment poor investment Theperformance returns median manager equity areamong asinadequate, well pension pension as the fund the funds obligation taxpayer lost has an more retirement income protection than do defined-contribution plans because than against single-employer a specific market plans, but, segment. like the Some differences managers feel among instead plan types, that the the bAverage annual total returns, 1974-1984. subscribe actuarial method to privaused te performan by the ceplan.evaluation Because servi thisces, way the of granting disclosurebenefit data 3 Eugene The Employee B. Burroughs, Benefit "The Research Fiduciary's Institute Lament: (EBRI) Whither was formed Inflation?" in 1978Pension as a Csponsor, onclusions therefore, poor investment performance could be an incentive 18 to managers will pay Both the wouldcosts. theprefer Treasury to set and goals the Department with respect have torecently the behadiscussed vior of the the Insurance as eight Company or more phases or steps, all designed to guarantee that the concerned of (Table theBoth i). planpolicy-makers arguments Among sponsor pension to somewhat manage enough funds othe vfixed-income to ersimplify managers. encourage the funds Social a portfolio thorough averinvestment aged mevaluation aover nager's strategies eighttask, of percent the and as amount the advacomparable ntage of to being the able lossestoofpursue equity both mutualincome funds.and capital gains without in differences the former are plan neither the large employer nor bears consistent. the risk Overofthe poorlastinvestment year, the return. median appropriate target depends on market conditions. In some markets simply World o20 computing (August 1984), benefits Hearings p. 21.on ontheJanuary basis 9ofandthei0,employee's 1985 earnings in the Equity c 17.8 d increases raises the sponsor's New out-of-pocket York, N.Y. costs, only an estimated 3 filed withlast the few Department years immediately on the Formbefore 5500 represent retirement; the only universal source non-profit, establishment non-partisan, of long-term U.S. publicGovernment policy research bonds thatorganization are indexed to to the conduct rate terminate Notes the plan and offer more compensation in cash wages. 21 mDepartment arket. Theyhas prefer adequateto information set goals bafor sed making on alternative a decisionmarket and that activitythe Fixed income c ยข in ha well ving total asAsto inno pl returns aconsider vnations sponsors (Tlike able the and index tax 2).investment implications bonds By contr are ast, managers partial ofequity alternative deal approaches mutwith ual these to funds forms theissues, lost building of income. nearly what of legislati indeed,Over vethethe and social regulatory longer policy period, en issues vironment however, involved of pension-fund pension as well.funds. Inandthe These mutual-fund first hearings case, returns if arethe a union and jointly-trusteed fund earned almost exactly the same return as the Inadequate preserving capital investmentcould earnings be an in achiedefined-benefit vement. In other plansmarkets, must be suchmade as the up 4 Eugene B. Burroughs, "More Plans Are Addressing the Real Rate of Return TABLE 2 Balanced c 15.0 d percent Issue," of Pension all defined-benefit World 20 (Octoberplan 1984), participants p. 54. are in plans offering such of performance, o adjustingfunding, the saand laryother base data or on thepension benefit plans. accrual Lac rate k ofonfunding an ad hhoc as FallinE Real Value of Benefits research and educational programs. EBRI is committed by charter to the scenarios of inflation. and onShort-term the plan's Treasury risk tolerance securities and are liability alreadystructure. effectively indexed, can applicant the Department receives do a fair to help? hearing. Requests for exemptions can therefore take part an investment of this assessment. portfolio. Alternative investments with social value should be are ele Pension portfolio venmuchpercent, funds, closer. managerhowever, and chooses Since pension1974, areto funds constr accept mutual invested ainedafunds lower byinhave restrictions equities rateearned of lost return animposed anaverage aon verage aunder of "social" of10.2 one the through median defined-benefit added sponsor plan (Tcontributions, able 2 ). Over the whilefive-year poor period, earnings however,in current environment, with AAA corporate bonds paying an average of 9.8 percent basis; 9 Internal-captive SHORT- AND LONG-RUN TOTAL RETURNS IN PENSION FUNDS increases. Low investment returnsof not only make automatic increases delayed 5 KarentheW.release Ferguson,of re"The cent Advocate's years' dataArguments: to the publi A cRevie . The w and availability Comment," ofin premise that the nation is served positively in both social and economic terms since their terms are so frequently renegotiated that the investor's inflation From Plan Continue asponsors maeroeconomic Deresulation can enrich policy point pensionof vbenefits iew, managers or protect are also them troubled against by per many cent. Equity years to clear through the process. 1.6 Private-sector input 13.2in d this process pursued Employee investment--e if Retirement they ven fit if,Income into as some anSecurity overall advocate, Actstrategy. ofthe1974participants Investment (ERISA). ERISA were managers consulted restricts should the and be percentSometo of17.5the percent approaches per year that have (Table been I). suggested Since 1980 for pension improvingfunds pension have defined-contribution plans simply reduce participants' retirement incomes. yields during in thethethird median quarter union ofandthis jointly-trusteed year, and inflation plan avat eraged an annual I00 torate 150 of basis 3.3 Dallas L. Salisbury (ed.) Should Pension Assets Be Managed For o adjusting benefit accruals for inflation prior to computing the Fixed income c c Short-run Long-run expensive, they also make it difficult for the sponsor to institute faster retirement benefit; and; these Social/Political data would Purposes? not only (Washington, improve theD.C.: information EBRI, 1980), base p.for99.making public by the erosion the fact existence through that index inflation of bonds employee in would one benefit protect of twoprograms; ways. only one One they sector waycan isfrom be to increase clearly inflation.shown the What rate to forecast can be constantly updated. Long-term securities, however, can carry Type couldBal ofaexpedite nced fund the progress of exemptions 7.3 Returnsasa an SRO could Returns 11.8 drawb directly on fund performance OThe ver process the longer include: of clarifying term, however, and modifiying equity fundsERISA's outperformed investment both standards balanced earned accountable agreed from to this 10.3 to the choice--the percent sponsors to 15.3 consequence who percent hire them, per may year the wellparticipants (Table be that 2). retirement whose funds incomes they points types of lower transactions than the in plan either can enter defined-benefit (particularly orwithdefined- related contribution entities), The percent employer in the could yeartherefore ending in be the more third likelyquarter, to insisttheontarget a high rate return of in return the Sophie Korczyk vesting, earlier retirement, orResearch reduced Associate integration with Social Security. policy 6 Alicia decisions, H. Munnell, but would The also Economics aid sponsors of Private and managers Pensions in (Washington, improving their D.C.: o linking benefit accruals to the market value of the plan's assets. 7 Defined-benefit improve significant at which economic benefits inflation funds security. are risk earnedfor EBRI bythechanging undertakes lender. theIf, tobenefit provide in turn, formula. the their studies interest This and affects rate the makes pension participants the only sector worthy of such protection? All funds expertsandin fixed-in the affected come funds. industry Over to determine the last whether ten years, the exemption equity mutual request fundsis HOW requires has invest, ARE beenPENSION and that going the plan on FUNDS broader assets forPERFORMING some society be time. diversified, at AGAINST Most large.investment INFLATION? andBut imposes thismanagers accountability prudence applaud standards. should efforts not to will ofall Revising short feder of alwhatlegislation is deemedand adequate regulations or go what verningis pension-fund promised to single-employer could be much higher. plans. defined-benefit plan, while being less concerned about the quality of The Brookings Institution, 1982), p. 102. Employee Benefit Research Institute Equity -0.2 15.3 investment management; performance. If sponsors We urge grantthecost-of-li Department ving tobenefit give the increases processing on an of ad thishoedatabase basis, All but the last method require TABLES that the plan actuary incorporate the statistics that will allow informed public policy decisions regarding employee only taxpayers reflects activthe e wouldemployees. lender's pay higherinflation The taxes other toforecast, protect way is to pension the grant costparticipants post-retirement of long-term in the debt benefit event can valid Fixed and income consistent with industry practice. 8.3 At the 10.3 same time, the mean earned that aboutinvestment seventy per managers cent moreshould than make fixed-in social come policy funds, in while placpension e of elected funds Type participants. streamline ofWhile Nominal HanaKer these pension returns Thatstandards, funds this have is differ tomaking done be from compared inthem the otherclear, name withinstitutional of theeasy aloss social to incomply investors, the goal purchasing with doestheir not and SOURCE: Wilshire Associates, Trust Universe Comparison Service, Third Quarter, investment Whileperformance market conditions in the defined-contribution impose short-run plan. constraints on attainable 7 Dan M. McGill, Fundamentals of Private Pensions (Homewood, Ill.: Richard 1984. Balanced 4.4 12.8 o Developing new investment instruments that would protect pension benefits. the increases are often a function of the plan's actuarial gains, that is, the additional D. highest Irwin, Inc., priority. inflation 1984), protection pp. 206-210. into the plan's actuarial assumptions. If of Table unexpected I Short- inflation. and Long-Run Total Returns in Mutual Funds 4 become prohibitive in an environment of inflationary expectations. increases either systematically as a function of the rate of change in the performance enforce, irepresentati organization nvested and inves. patterns equities applicable would notare eabe rned toneable vaertheless wide about to variety approve fifty similar. of per all cinvestment ent applications Pension more than circumstances. fundsindiscriminately those and mutu invaested l funds in as mitigate funds the consequences. against unexpected inflation or poor investment decisions; and power of accrued pension benefits due to inflation. Since 1974, inflation has Performance The type of observed manager employed in the by TUCSthe database fund coulddoesalsonotcontribute bear outto this the returns, at least one observer has suggested that over the longer term pension Defined-contribution funds aData for year ending September 1984. investment investment returns returns do thatnot execeed xceed the inflation return plus assumed the real in the growth plan's rate,actuarial the plan 8 McGill, pp. 218-229. My Advantages statementoftoday such will bondscover for the investors following wouldissues: include the assurance that Social Table price 2le InShort- vvestin el orKand on Long-Run an ad hoc Total basis Returns as funds in Pension are available. Funds Poor investment 4 PENSION-FUND theEquity DepartmentINVESTMENT would retain PRACTICES final AND jurisdiction RETIREMENT -I.0 over BENEFITS applications. 14.2 provide bAverage fixed-inAcome avrecent alue useful instruments. ofDepartment comparison median rates Balan because proposai ofcedreturn, mafunds, ny could pension 1980-1984. atake s might plans thisbeare process expe themselves cted,further. avoid invested both The o Increasing pension-fund holdings of alternative--and possibly averagedThe 7.8 second percent social-investing per year. With argument mutual represents fund returns a somewhat averaging simplistic 10.2 to expectation. Defined-contribution plans performed slightly better than fund's funds should investment aim at performance. a real rateSome of return differences comparable in performance to the economy's among types growth of Fixed income c CNot available. c higher-yielding--investments. forecast. About 51 percent of all defined-benefit plan participants are in 9 U.S. 4 Department of Labor, Bureau of Labor Statistics, Employee Benefits sponsor has to make up the shortfall in the fo_n of plan contributions. Table o3 Short- How does and Long-Run the investment Pension-Fund performance Investment of pension Returns funds compare with areturns specific Letwould Sponsors realdiscourage rateandofManagers return both types would Set of Investment beimpro earned vements. Policies regardless of unexpected swings Balanced Another option that has been proposed 5.1 for improving 12.6 pension-fund dA Department verageIf based pension has onrequested four fundsyears' fail public data to earn comments only.a real on arate proposal of return to establish after inflation, an ERISA the highs and the lows of equity and fixed-income strategies, earning at in 1v7iew .5mutu percent of al financial funds. per year, Themarkets. mutual comparisons funds Investments discussed earned nethave below real to returns are bebased compared of 2ontoperformance over on 9many per managers can be observed, but, here, again, the patterns are not consistent. defined-benefit rate. Economists plansestimate in the that last the twelve economy months, shouldandbeslightly able toworse sustain thana in Medium that and ofLarge otherFirms investors? , 1983, August, 1984, p. 12. by Type of Manager and Investment Medium 8 I0 Federal regulations plans that offer post-retirement benefit increases on an ad hoe basis. Inadequate investment returns, therefore, would make it less likely that Inflation protection throuEh the benefit formula. Defined-contribution and Uinvestment in nioninterest /jointly Deregulation returns rates trusteed oris is inflation. funds increasing differentAnfund advantage fromholdings setting of such of investment alternative bonds for the policies investments. government for middle their ability of the perform to deli ancever rabenefits nge. could decline. This decline could come data compiled by Forbes magazine on 529 mutual funds that invest in taxable self-regulatory cent characteristics, per year. organization Since including 1980, yield, inflation (SRO) risk, thathaswould liquidity, averaged serve 6.5 maturity, as percent, a source andwhile oftransaction expertise pension Over the last twelve months, the performance of funds managed internally or by defined-benefit plans over the five-year period. In the last year, long-term I0 Ibid. growth rate of two to three percent. Since wages will generally o How are pension funds performing against inflation? Equity -0.9 13.9 Over the last several years, the Department has been working to This is a relatively painless way for the sponsor to grant an increase, since sponsors would adopt plan design features that would provide inflation defined-benefit Con would clusions be the fact plans thatcan whenprotect inflation the rate participant expectations against lag behind inflation actual in These Fixedinvestments income generally offer not only 8.3 an investment Ii.0 return, but also about investment in twomanagers. ways: If regulatory agencies make it easier for pension plans securities costs. funds in thereturned exemption Markets and a10.5 for group process, percent financial of aid pension tosecurities the 17.8funds Department percent. participating are generally in Realdeveloping returns inconsidered thein class Trust pension efficient. exemptions Universe funds defined-contribution "captive" subsidiaries plan significantly earnings were exceedabout that70oftofunds 80 basis managedpoints by bank higher and reflect economic growth, an investment return that also reflects growth will II Federal o WhatResister, is a realistic Vol. 49, target no. 238, rate December of return I0, for1984, funds?p. 48111. Balanced 5.8 11.5 simplify the regulatory standards that govern pension-fund investment the funds do not have to come from the sponsor's current earnings. Unexpected protection. different ways. attempt to further various social goals. Investments that have fallen under inflation trends, the government would be paying a premium for expected to invest in mortgage-related securities, venture capital, or other assets, o Increased contributions due to lower investment yields could prompt Cthus from Information omparison averaged the Pension prohibited Service about 4plan to over securities asset transactions (TUCS) I0managers percent totaling flowsprovisions gener perquickly, ayear lly nearlyover agree insecurities 25 this ERISA, thapercent tperiod. there andarepossibly of is trano ded allreaact in son pension large aswhya trust departments or investment counselors (Table 3). Over the longer term, than defined-benefit plan earnings, but over the five-year period, mean that the plan shares in the economy's growth and is not becoming an o What determines the performance of pension funds? many plan sponsors to terminate their plans; practices. Comprehensive plan asset regulations, currently under preparation, 1 investment After returns retirement, cannot benefits occur contin can uously be protected , however, against because inflation ERISA in requires one of inflation that ultimately does not take place. The views expressed in this statement are solely those of the author and this the evidence heading Defined-contribution include is thatmortgages someplans plans andcan will mortgage-backed offer taketwoadvantage types securities, ofofinflation suchventure opportunities. protection. capital disciplinary pension enough quantities plan authority investment to that make perform could athem ncecompel liquid, should adherence beandworse to securities itsthanstandards. thamarkets t of II other This are SOURCE: assets. At Wilshire the The same compilation Associates, time, howe ofver, Trust investment different Universeperformance Comparison time periods data Service, orin plan these Third samples databases can increasing real burden on the sponsor. defined-benefit however, insurance plan earnings companies wereoutperformed 20 to I00 basis bank points and higher, .trust depending departments,on o How can pension-fund performance be improved? should notQuarter, be attributed 1984. to the Employee Benefit Research Institute, its will clarify o Inflation the could standards erode governing the real value pension-plan of pensioninvbenefits, estment in increasing pooled that the plan actuary use the best and most realistic estimate of investment several ways: First, Index since bonds contributions could probably are related generate to salaries, some interest contributions amongwil! investment reflect officers, and small trustees, businesses,sponsors, and reindustrialization or other staff. The of Employee declining Benefit industries Research and Such innovations, reliance on however, Social Security are not benefits a substitute for retirement for an integrated income. portfolio organiz institutional ation could investors. be modeled While onsome similar fundsprivate-sector may perform organizations poorly, this is in not the the differs yield WHAT well-linked. plan's DETERMINES very in investment certain different The THEcrucial efficiency PERFORMANCE mixpatterns. (Table respects, ofOF 2). markets PENSION For making example, means FUNDS? exact that quantitative the market S.E.I. yields Funds comparisons and Evaluation prices investment counselors, and internal managers. Given the relatively short time o How is pension fund performance related to retiree benefits? Institute is a non-profit, non-partisan public policy research organization. aMedian total return for year ending September 1984. securities and various participation arrangements, as well as debt, equity, returns in valuing the plan. Accordingly, plan sponsors cannot count on o linking benefits to asset values; declining regions of the country. managers strategy. asThe partsponsor of a still generally has to active make investment the hard decisions strategy.thatIfdetermine we think the of bAverage inflation value during of median the participant's rates of return, working 1980-198a. career to the same degree that IncreasinE true of all.Contributions In at least two large groups of pension funds and mutual funds, generally Service securitiesreports reflect and accounting that investors' over disclosure the assessments last 15fields. years of eachthe Under asset's median thefeatures. Securities fund in its Therefore, Exchange sample Type of Plan Sponsor horizon Some of pension even thefunds long-run perform estimates well even (fourin or adverse five years, market depending conditions,on even the CNot available. and limited partnership arrangements. These regulations should make it easier o automatic cost-of-living adjustments; salaries the investment Theredo. areSecond, manager at least since as two trying benefits different to reach in approaches defined-contribution an optimal to mi social x of plans investing. risk depend and yield, One on plan's goals and how they are to be fulfilled. Managers agree that the Act the differen of The 1934, sponsor ces the in of aperforman National plan returning ce Association amonglesspension thanofinflation funds Securities arepluslarger Dealers the real thangrowth (NASD) the an achieved investment an averase that offers return higher of 6.9return percentandperlower year,riskwhile thanthe comparable average assets annual The type of plan sponsor has also been suggested as an influence on mif anager) other and fundstheare fragmentary falling far nature shortof oftheneeded available returns. data, Why thesedo performance some plans EMPLOYEE BENEFIT RESEARCH INSTITUTE 212 l K Street, NW, Suite 860, V_'ashington, DC 20037 'Telephone (202) 65c_.0670