Assets of U.S. pension funds leapt to $7.4 trillion at the end of 1997 from $6.3 trillion a year earlier, according to the latest data from the Federal Reserve System.
That 18.1% increase, due largely to the stock market's continuing runup and money pouring into defined contribution plans, is the third consecutive double-digit gain for domestic pension fund assets.
"This is far from a surprise," said Ira Siegler, a principal with the Kwasha Lipton Group of Coopers & Lybrand in Fort Lee, N.J.
Once again, the data from the Federal Reserve's Flow of Funds report showed that pension fund assets dwarfed the $5.6 trillion in assets held by mutual funds and life insurance companies combined.
Mutual fund assets jumped to $3 trillion in 1997 from $2.3 trillion the previous year, while life insurance companies' holdings increased to $2.5 trillion from $2.2 trillion in 1996.
The data also show that equity holdings of pension funds remained steady last year, at 28.1% of the $13 trillion in U.S. equities outstanding, compared with 28.5% at the end of 1996.
What's more, pension fund assets are continuing to become a bigger share of the total wealth owned by American households. Last year, pension fund assets represented 27.5% of the $27.1 trillion in financial assets (excluding real estate) held by all households, up from 26.5% the previous year. At the same time, pension fund assets represented 19% of all assets -- including real estate -- held by American households, up from 18% in 1996.
Public pension plan assets logged the highest increase -- a whopping 22% -- to $2.1 trillion in 1997 from $1.7 trillion a year earlier, while private pension plan assets grew 17.6% to $3.6 trillion from $3.1 trillion in 1996.
Meanwhile, pension fund assets held by life insurance companies in their general accounts or central investment pools grew to $1.2 trillion from $1 trillion in 1996.
Assets of federal pension funds lagged behind, growing 7.3% to $449.6 billion in 1997 from $419.2 billion in 1996.
In large part, public pension fund assets grew not only because they benefited from the stock market's spectacular performance, but also because their contributions far exceeded their benefit payouts, experts said.
New Jersey alone poured $3.2 billion into its state pension funds last summer raised from the sale of pension obligation bonds. That shows up as a blip in the second quarter, when contributions exceeded benefit payouts by a sizable $98.2 billion, up from $66.3 billion in the first quarter, and in the third quarter when net contributions were $100.1 billion.
But many private employers, on the other hand, were blocked from putting more money into their traditional pension funds because the unending bull market improved their funding levels to the point where they bumped up against legal caps, Mr. Siegler explained. At the same time, that same bull market caused a stampede of money to pour into defined contribution plans.
"The growth of private pension funds reflected both the gain in the stock market, and the increase in contributions to defined contribution plans; while the growth in the public pension funds also reflected the growth in contributions, and a very significant return on their portfolio, particu- larly equities," said Albert M. Teplin, head of the Federal Reserve's Flow of Funds section.
Mr. Teplin pointed to data which show that the payouts by defined benefit pension plans exceeded contributions by $2.7 billion in 1997, while defined contribution plans logged a hefty $85.6 billion in net new money.
"These figures are following the pattern. If you take 1997 out and look back, this is exactly what one would expect," Mr. Siegler said, predicting that even more traditional pension plans will be funded fully in 1998 and unable to make contributions.
Traditional pension plans have been net sellers of equities in more than a decade, selling as much as $32.9 billion in 1997, up from $16.9 billion the year earlier. At the same time, defined contribution retirement plans continued to be net purchasers of equities, with holdings of $9.3 billion at the end of 1997.
This disparity might be due to the growth of retirement plans such as 401(k) plans, Mr. Siegler explained, as well as "the discipline of asset allocation requires pension funds to get out of things when they run up, so the sell off of corporate equities was probably because of rebalancing" portfolios.
The Federal Reserve based its report on data gathered from the 1994 annual reports, Form 5500s, pension plans must file with the Labor Department. Researchers then updated those numbers using data from the Independent Consultants Cooperative Universe, as compiled by Bankers Trust Co., New York, on returns of various assets held by pension funds.