WASHINGTON - Assets of U.S. pension funds jumped to $6.3 trillion in 1996, a 13.5% increase from the previous year, according to the Federal Reserve.
That amount is larger than the $2.2 trillion in life insurance assets and the $2.3 trillion in mutual funds combined.
Given the massive run-up in the stock market, the 13.5% jump isn't too surprising, although the increase might be smaller in 1997, experts say.
"I would suspect, generally from what I've been hearing, that companies are looking to go a little conservative this year," said Ira Siegler, consulting actuary with The Kwasha Lipton Group, Fort Lee, N.J.
The data, from the Federal Reserve's Flow of Funds report, showed pension funds - defined benefit and defined contribution plans - held at least 23% of U.S. corporate equity (common, preferred and closely held stock) at the end of last year. In 1995, pension funds held 22% of all corporate equities.
What's more, pension fund reserves increasingly are becoming a larger share of total assets held by households and non-profit organizations. In 1996, the reserves were nearly 28% of the total $22.7 trillion held by this sector.
Private pension funds comprised the largest portion of pension fund assets, and had the largest percentage gain, climbing 15.2% in 1996 to $3.1 trillion. State and local pension funds jumped 13.6% to $1.7 trillion in 1996. Other components were insured pension assets - those managed in insurance company general accounts - increasing only 9.5% to $1.1 trillion, and federal pension funds, growing 11.8% to $419 billion.
Mutual fund holdings for private pension plans skyrocketed 53% to $411.1 billion in 1996. This is the second consecutive year mutual fund holdings have grown more than 50%, the Fed numbers showed.
Kwasha's Mr. Siegler said this isn't concerning, mostly because the rise in mutual fund holdings has dovetailed with the significant increase in defined contribution plans. In fact, the Department of Labor's latest report on the Form 5500 shows the number of 401(k) plans increased 10%, to 154,500 plans in 1993; the number of defined benefit plans decreased 6%, to 84,000.
"With defined contribution plans, they are expanding the number of options and going further into the mutual fund area," Mr. Siegler said, adding the increase in mutual funds was not at the expense of corporate equity holdings.
"I would be concerned if corporate equities were going down at the same time" as mutual fund holdings increased, he said. "It's a very healthy trend, with equities going up as mutual funds go up."
Corporate equities had sharp increases within private and state and local pension fund holdings, rising 17% for private funds to $1.3 trillion and 27.4% to $948 billion for state and local funds.
Although public funds had a significant increase in corporate equities in 1996, it was not nearly as high as the 39% gain in 1995. Jennifer Davis Harris, director of the pension and benefit project for the Government Finance Officers Association, Washington, said many public plans have legal limits on certain investments - including equities. Many public plans saw the advantages of investing in the stock market in 1995 and have hit their legal limits, she said.
Government securities saw modest gains for both private and public pension funds. Private fund holdings of government securities increased 4.8% to $408 billion, while public fund holdings gained 7.7% to $292 billion.
The Federal Reserve used the Labor Department's information from the 1992 Form 5500 reports as a benchmark. Then, it calculated more accurate quarterly flow levels with data from the Independent Consultants Cooperative Universe as compiled by Bankers Trust Co., New York, on returns from different types of assets owned by pension funds.
Albert M. Teplin, chief of the flow of funds section for the federal reserve, said the Fed is working on expanding the information available on pension assets. For example, the Fed does not break down defined contribution vs. defined benefit plan assets, individual retirement accounts, or Keogh accounts, Mr. Teplin said. But it might take some time.
