_ T-71 3 4 5 6 8 7 2 Tabla 1 Table 2 EBRI EBRI Joint Trusteeship of Pension Plans and its Impact on Market Performance: These equity, are presented data Defined 38.7 again percent so contribution that emin phan asize bonds, evaluative plans the 8.5 effect percent experienced eye s o can finass cash view et aallocat higher and the 23.6 io data nquarterly , percent and althou make ghrate in other the an of Viscl individual return assets oskyfor beneficiaries would principally of the affect plan? single-employer Some feel that plans increased and social multiple investing employer is highly plans. Edward Callan, chairman of Callan Associates, notes that if single-employer Net Flows for 1988, by Plan Type Rates of Return, Ending September 30, 1989 L ,r An Analysis of EBRI Data bill would presumably not affect those plans in which participants already control total plans judgement desirable Comparisons (chart assets experience 1). in Therefore, though about allwith pension athe decline slightly multiemployer aeffects notable plan in lower of investing; their difference joint returns equity plans trusteeship others does for include performance, the exist feel longer on decisions that in pension asset the time an overemphasis allocation corporation on periods. plan investment investments. by Equity simply plan on social type. Period Single Employer Single Employer most Jof ointtheTrusteeship investment ofdecisions. Pension Plans and its Impact on Market Performance: investing Flows will --detract The flows from of return the different and perhaps types increase of privaterisk, pension each of funds whichalso would denote be managers, investments makes larger asset of contributions these allocation, funds and to achieved compensate. may include rates ofIfspecific return a multiemployer which investments were fund equal as well experiences to as or higher Flows Defined Quarter Benefit 1 YeaDefined r Contribution 3 Year a Mult5 iem Year ploya er An Analysis of EBRI Data (billions) Plan Type and Indicies 89Q3 88Q4-89Q3 86Q4-89Q3 84Q4-89Q3 Data Source and Organization of Data detrimental co similar mparisons differences. toofthe theplan return All sponsor planontypes the in investments. experienced terms of larger net contributions withdrawals and overall to the and losses than those on equity achieved investments, by the single-employer then the plan must defined go back benefitto plans. the bargaining Bonds had tablehigher and Earnings All Assets by Jennifer Davis Dividends and Interest $37.6 $22.7 $9.2 Single Employer DB Plans 7.4% 22.9% 16.5% 18.1% What Causes the Difference? returns experienced employees for in all large terms timecapital periods. of fewer gains or relative lower benefit to thoseincreases. net withdrawals. negotiate Equity QPIR larger results rates contributions. of froreturn m a joint are 1 pr similar oject wit forh single-employer the Department plans of Laband or (DOL), the Statement on Capital Gains Research 55.4 Analyst 31.9 5.5 Single Employer DC Plans 9.7% 24.6% 15.8% 17.3% Introduction All Multiemploy and er Overview Plans 5.3% 18.9% 12.4% 15.5% Another variable which has been mentioned as a difference in the Why Total are assets there of differences multiemployerin the plans assetexperienced allocation and rates flows of return between which single- were Federal multiemployer InReserve 1988, defined plans. Board Overall, benefit and EBRI. plans multiemployer This experienced same data plans net base withdrawals have is used lower to generate rates of $18of billion. return the Federal Of for Net Contributions Joint Trusteeship of Pension Plans and its Impact on Market Consumer Price Index 0.7% 4.3 % 4.3 % 3.4 % Summary Equity Performance: -12.0 An _lalysis of EBRI -18.8 Data -1.6 How Others Have Used the Data Legislation that would require that the assets of a private, single-employer employer defined benefit plans and multiemployer plans? This question is central investment all that, consistently Reserve assets mostBoard probably of of lower the multiemployer Flow withdrawals than due of to Funds either the different and came numbers type single-employer of from single-employer allocation. forequities. pension These plans Counteracting assets plan. data isasthe well Equity show ageas these that and investments, pension the net tenure assetof Bonds -7.6 -1.9 -3.6 Equity Cash -0.9 9.3 3.8 Hearings on Joint Trusteeship of Pension Plans Single Employer DB Plans 11.0% 33.6% 20.9% 22.5% pension plan be held in trust by a joint board of trustees consisting of an equal to withdrawals, the debate. defined If the difference benefit plans was received entirely due $38 to billion the required in dividends joint and trusteeship interest in the however, numbers participants. QPIR for outperformed data the Income h The as been argument the and used other Product by states plan many Accounts that types participants multiemployer for for all the time in Department this periods plans debate. have, except of The Commerce. on for data average, the do • Dueallocation to differences of multiemployer in asset allocati plans on, jdiffers ointly trusteed from thatplans of either achieved single-employer a five-year annualized Other Assets 2.7 -4.1 -0.8 Single Employer DC Plans 12.3% 33.9% 20.9% 23.3% rate of return Before 2.6 percentage the U.S. points House below Education non-jointly and Labor trusteed Subcommittee defined benefit on funds All Multiemployer Plans 11.6% 34.1% 21.3% 22.5% number of employers and participants has sparked an intense debate among multiemployer and experienced plans $55 billion then one in capital could assume gains during that had 1988. single-employer Flows, then, for plans defined also older clearly Data defined quarterly from employees show benefit return. DOL thator Form with single-employer Finally, single-employer 5500, longer bond which tenure investments all plans defined which pension would prompts contribution achieved plans be more must thecomparable board expensive plans file, are of with trustees used returns for multiemployer employers for to the toinvest the years Total Net Contributions -17.8 -15.5 -2.2 Labor Management Relations S&P 500 10.7% 32.9% 18.6% 20.3% • If non-jointly trusteed defined benefit funds had achieved this lower rate of return, they employers, workers, and policymakers. The bill (H.R. 2664), introduced on June 15, benefit been and, other that these in required plan plans the data types. short totalled to arehave term, available. ajoint $75 the Federal billion trusteeship To project inflow Treasury their beyond largely were asset this, from joint allocation EBRI capital trusteeship and would gains the to Federal (table have lead 1). been to Reserve a the in plans bonds more to heavily preserve invested investment in bonds. performance Since bonds of the have past, historically preserving had the monies lower for Total Net Flows $75.2 $39.1 $12.5 Bonds 21 February 1990 would have had to contribute an additional $87 billion to end the period with the same Source: EBRI Quarterly Pension Investment Report, third quarter 1989. Single Employer DB Plans 0.8% 11.8% 8.7% 12.6% 1989, total assets by Rep. Peter Visclosky (D-IN), is expected to gain increased attention as rates same Board changeof as Defined use in return, multiemployer asset data contribution the from allocation asset Wilshire plans. allocation toplans that Associates EBRI of also difference jointly estimates hadand net trusteed SEI may from withdrawals tobe multiemployer project QPIR the major data these during that reason data 1988 plans. with to for of this estimate the The $16 asset data the the benefits that will need to be paid in the near future. Single-employer plans with by Single Employer DC Plans 1.8% 17.5% 10.5% 13.7% All Multiemployer Plans 0.9% 12.2% 8.8% 14.0% current What the level Data of Show assets. Congress focuses on the perceived short-term investments of pension funds. allocation single-employer plans would have had to make an additional $87 billion billion, in QPIR again cannot, mainly however, from be equities. used definitively These plans to received settle the dividends debate over andthis interest proposal of an difference overall in younger overall workforce rates of return. could For invest themore five years in equities ended which with third over many quarter years Jennifer Davis • These data show a significant difference in asset allocation and return by plan type and trustee Shearson/Lehman b 0.9% 11.3% 8.1% 13.2 Research Analyst form, yet this cannot be used definitively to settle the debate on joint trusteeship Source: EBRI Quarterly Pension Investment Report, third quarter 1989, revised. would Especially evencritical out fluctuations will be emphasis in the on market. the comparison There is no of consensus single-employer that these plans and $23 in net billion contributions and experienced from thecapital end ofgains 1982 of through $32 billion. third For quarter defined 1989contribution to achieve the for three The QPIR reasons: data empha aresi (1) zes available the the dataeffects for does private o not f asset allow trusteed allocati the pension o user n. to A split much plans.out larger These different prplans oportion reasons are of 1989, the Shearson-Lehman-Hutton bond index showed an annualized five-year Employee Benefit Research Institute aThree- and five-year returns are expressed as annualized rates. for asset allocation or the motivations behind the decisions; (2) even if the • Asset same multiemployer plans, bShea allocation rson asset flows Lehman level totalled forplans Bthe they rothe$764 rs an because currently Kuhn inflow billion Loeb multiemployer of have. Gove in$39 single-employer rnment billion. /Corporplans ate defined Bond have In had dex. benefit equal plans union is and 40.3 percent in workforce market then divided experience differences by single-employer (including do, in fact, dividends, lead and directly multiemployer interest, to the anddifferent plans. capital The gains) assetsingle-employer allocation. for single- return of 13.2 percent compared to an annualized five-year return of 20.3 percent for equity, 16.4 percent in bonds, 4.1 percent in cash, and 39.2 percent in other assets employer representation on investment boards mandated by law, primarily by the employer Flows defined for multiemployer benefit plans is plans derived totalled from$13 thebillion stock during market, 1988. while Net bonds the motivations plansStandard are Several divided were & other Poor's split, by factors defined 500 there (a beyond is commonly benefit debate joint and onused trusteeship defined which index would contribution. for mayequity bealso the come investments). most Multiemployer into advantageous play. The plans Motivations have also been discussed as a reason for the differences. Perhaps, • For the $466 billion in single-employer defined contribution plans, the asset allocation is 44.2 Labor BecauseManagement QPIR does not Relations allow Act for the (Taft-Hartley breakout of Act) these in effects, 1947. this section will for withdrawals are account not society, divided for in the totalling addition by bulk plan of $2 to type, multiemployer billion the but participants came DOL largely states plans andin income. from beneficiaries; 1985bonds. that This nearly These is and a direct 75 (3) funds percent theresult Congress received of of the $9 the reasons argument why multiemployer goes, multiemployer plans invest plans awith largeremployee proportionrepresentation of asset in bonds on the is percent in equity, 7.1 percent in bonds, 13.5 percent in cash, and 35.2 percent in other assets different EBRI's asset Quarterly allocations. Pension In addition, Investment as can Report be seen (QPIR from ) contains table 2, the data returns pertinent on billion might provide view inan dividends overview the publicand of policy some interest reasons of and the possible nearly for change $6influences. billion as overriding in capital any gains. economic costs. multiemployer investigated later plans in this werepaper. defined benefit. For the purposes of this paper, the board of trustees, make more long-term investment decisions and do not try to • The $146 billion in multiemployer plans is allocated with 29.2 percent in equity, 38.7 percent to this bill by presenting the asset allocation of single-employer defined benefit The Multiemployer future project plans of operate EBRI concerning in a different turnover environment and investment than single- decision equity single-employer Single-employer Rates and bonds of Return defined do not-- plans vary benefit The and dramatically rates plans multiemployer of , return the between single-employer also varied plans, plan by types however, plan defined in type. the docontribution 1,not Defined 3, or operate 5-year in outsmart the market through many trades which could feed the volatility of the in bonds, 8.5 percent in cash, and 23.6 percent in other assets plans, motivations single-employer will shed some defined lightcontribution in this area.plans, Preliminary and multiemployer results will be plans. available There employer plans, benefit returns. and plans The plans theexperienced overall multiemployer since returns, all multiemployer a 7.4however, plans percent willreturn do plans constitute vary on negotiate with allthe assets multiemployer plan with during types. unions the and plans' third agree quarter returns on perfectly stock market comparable proported environments. to be created While by other all institutional these plans are investors. governedEvidence by the for • The total assets of single-employer defined benefit plans enjoyed a 7.4 percent rate of return are also data on the income and contribution flows and rates of return for these this for the summer. third quarter of 1989, a 22.9 percent one-year return, and an annualized five-year of 1989, a one year return ending September 30, 1989, of 22.9 percent, and an contributions and are lower as than partthe of returns the negotiations. for single-employer The contribution defined rates benefit are and frequently defined set Employee this argument Retirement are sparse Income and largely Securityanecdotal. Act of 1974 EBRI (ERISA), is currently all multiemployer beginning a study plans return of 18.1 percent, all periods ending with the third quarter of 1989 Data plans. of turnover In QPIR rates , single-employer and investment plans time include horizon plans for defined that arebenefit and are andnotdefined collectively annualized for contribution a 3 to 5 year five plans. year term. Since return In this the ending bond way the September rates multiemployer of return 30, 1989, are trust lower of 18.1 fund, than percent. to thewhich equity The allrates equity of must also relate to the contracts negotiated with the union while not all single- • Single-employer defined contribution total assets experienced a 9.7 percent quarterly return, a The views expressed in this statement are solely those of the author and bargained. contributions Multiemployer are made, canplans estimate include future Taft-Hartley contributions plans.it will receive and return investments A and sset the of Allthese multiemployer ocationplans -- achieved The plans asset a have allocation rate aof larger return of the share for $764 the of billion assets third quarter invested in single-employer ofin11.0 bonds, employer contribution plans plans are in negotiated. both single-employer Other factors and maymultiemployer also limit the comparability plans. of 24.6 percent one-year return, and an annualized five-year return of 17.3 percent, all periods should not be attributed to the Employee Benefit Research Institute, its officers, ending with trustees, the third quarter sponsors, of 1989 or other staff. The Employee Benefit Research The Taft-Hartley Act of 1947 applies to union administered employee benefit participating employers can estimate all future contributions. defined percent, the overall benefit a one return year plans is return largely is 40.3ofa percent 33.6 resultpercent, of to equity, the and different 16.4 a five percent asset year allocation annualized to bonds, by 4.1 return plan percent type. of 22.5 to these numbers Finally, the including issue ofworkforce social investing age andhas tenure, occasionally investment been objectives, mentioned and in this the Institute is a non-profit, non-partisan public policy research organization. • Total plans. assetsTherefore, of multiemployer only these plans multiemployer experienced plans a 5.3 percent are required quarterly to have return, joint a 18.9 percent Single-employer plans can change their contributions at any time with the cash, percent need or and Notably, (again, desire 39.2 percent for all the periods stable defined to other contributions ending contribution assetoncategories. September among plans others. also This 30,lag 1989). compares the defined Finally, to the benefit bond assetinvestments plans allocation arena. Would increased employee representation encourage more social investing one-year return, and a 15.5 percent annualized five-year return, all periods ending with the representation on the board of trustees. Most multiemployer plans are of this type. approval of the named fiduciary and within the minimum and maximum of overall by the defined This $466 returns benefit paper billion while presents plans in single-employer outpacing achieved the EBRI the a 0.8 equity data defined percent and returns draws contribution quarterly for general defined return, plans conclusions. benefit awith 11.8 plans. 44.2 percent Also, percent The one the and would this be advantageous for society as well as the participants and third quarter of 1989 There are single-employer plans which are bargained with a union, but employers in year asset equity, return, allocation 7.1and percent of a defined 12.6 in percent bonds, contribution five 13.5 year percent plans return in are cash (table most and 2).similar 35.2 percent to defined in other benefit assets. contributions allowed by law. These limits were drawn closer together with the differences between the environments of single-employer and multiemployer plans 1phyllis Feinberg. "Taft-Hartley Plans Remain Conservative with Investments," generally retain significant control over all aspects of the plan. Therefore, this bill plans Finally, Omnibus although the Budget $146abillion Reconciliation higher in investment multiemployer Act in of cash 1987. plans may isaccount allocatedforwith some29.2 of this percent difference. in Pension World, November 1988, pp. 32-36. EMPLOYEE BENEFIT RESEARCH INSTITUTE EMPLOYEE BENEFIT RESEARCH INSTITUTE 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 Telephone 202-659-0670 FAX 202-775-6312 Telephone 202-659-0670 FAX 202-77%6312