Employee benefit assets -- at $283 billion when Pensions & Investments was launched in 1973 -- could total $25 trillion to $50 trillion in another 25 years, experts say.
Why the difference?
The lower projection is based on the relationship between defined benefit plan assets and the gross domestic product. Such plans currently make up 90% of the GDP. With the GDP expected to be about $28 trillion in 2023, according to Social Security actuaries, 90% of that would be $25 trillion.
The higher number assumes assets would continue growing at their current clip regardless of the GDP, said Sylvester J. Schieber, head of research at Watson Wyatt Worldwide Inc., Bethesda, Md.
Mr. Schieber bases his estimate on expectations that private pension fund assets, which were 15% of the GDP 25 years ago, now approximate 45%. So looking forward, assuming a straight line, they would grow another 30% in 25 years.
Those assets, adjusted for inflation, will peak in 2024, according to a 1993 paper by Mr. Schieber and John B. Shoven, an economics professor at Stanford (Calif.) University. Then, as the last of the baby boomers approach retirement, the asset base would begin to decline, Mr. Schieber said, as more retirees receive benefit payments.
No one was willing to project the breakout between defined benefit and defined contribution plans in 2023. Instead, they'd say only that 401(k) plans will continue to surpass defined benefit plans.
By 2007, however, defined benefit and defined contribution plans are expected to flip-flop in terms of market share, according to Greenwich Associates, Greenwich, Conn.
Defined contribution plans are expected to make up 64% of total retirement plan assets in nine years, according to a recent Greenwich survey, up from 39%. Conversely, defined benefit plans' share will shrink to 36%, down from 61% now.
"The trend is clear. More pension funds are moving their assets from defined benefit to defined contribution plans, so I don't see why that trajectory would not continue," said Bjorn Forfang, a Greenwich vice president.
Meanwhile, some experts believe that in 25 years defined benefit plans will be more conservatively invested than they are now.
That's because the plans will have matured, meaning there will be more retirees than active participants, and the plans will need more in liquid assets to meet benefit payments.
And 401(k) participants will continue to invest more conservatively than do their employers in their defined benefit plans, Mr. Schieber believes.
But Ronald D. Peyton, president of Callan Associates, San Francisco, predicts 401(k)s will come to look more like traditional pension plans, with employers gaining control over how they are invested, in a set of diversified options through an investment committee.
"Defined contribution plans will be more sponsor-directed than participant-directed because of the lawsuits that will occur when individuals have gotten into trouble by selecting the wrong options," Mr. Peyton said.
Adele Heller, director of defined contribution services at BARRA RogersCasey Inc., Darien, Conn., also expects 401(k)s will be invested more like defined benefit plans in the future. But unlike Mr. Peyton, she believes participants will continue to make the investment decisions.
"We will see much broader offerings (of investment options) to cover the entire risk return spectrum," she said.