Indexed assets might be down, but the strategy certainly is not out.
Total domestic indexed assets reported by the top 200 employee benefit plans -- defined benefit and defined contribution -- dropped a market-adjusted 6.8% for the year ended Sept. 30 to $688.2 billion.
Domestic indexed assets reported for the defined benefit plans dropped just 0.2% during the year, to $585.4 billion. When adjusted for the 9% return of the Standard & Poor's 500 stock index and the 11.5% return of the Salomon Smith Barney Broad Investment Grade bond index, the assets dropped 8.7%.
But domestic indexed assets for defined contribution plans grew a market-adjusted 6.4%. The defined contribution assets in the strategy are about a sixth of the defined benefit assets, totaling $102.8 billion.
In the year ended Sept. 30, many plan sponsors rebalanced their domestic indexed portfolios early in the year because of the fast rising equity market, with returns moving equity allocations past target allocations.
Both the California State Teachers Retirement System, Sacramento, and the State Retirement and Pension System of Maryland, Baltimore, with $29.62 billion and $8.89 billion in domestic index equity assets respectively, reported rebalancing their domestic equity portfolios during the 12-month period.
The Maryland system moved its market gains into international equity and small-cap equity.
LOOK AT EQUITIES
For the most part, dollar amounts invested in domestic equity indexed accounts reported by plan sponsors stood just less than what was reported in the previous year's survey.
The exceptions are two public plan sponsors: The Teachers' Retirement System of the City of New York, reporting $19.1 billion, and the Public Employees Retirement Association of Colorado, Denver, with $10.02 billion, showed substantial increases. New York City Teachers' domestic equity indexed assets were up 26% and Colorado's were up 35% from the previous survey.
According to Donna Anderson, chief investment officer for New York City Teachers, gains were the result of market appreciation, and the pension fund, which as of June 30 had $13.5 billion in a Russell 3000 index fund, did not increase its allocation to index equity. Assets include two variable annuity plans containing both defined benefit and defined contribution assets.
For large public plan sponsors like California Teachers, Maryland, the Kentucky Retirement System and Colorado Employees, domestic indexed equity assets comprise most of their overall domestic equity allocation.
Indexed domestic equity makes up 76% of the Kentucky Retirement System's total equity allocation of 70% The Frankfort-based system reported a 21% drop in its domestic indexed assets, to $6.8 billion from $8.6 billion, with most of the drop in indexed bonds. But the fund has moved more of its equity indexed assets in-house; it now manages $5.48 billion in domestic indexed equity internally, up 53% from the previous survey.
In the case of one corporate plan sponsor, it was a merger -- not a rebalancing -- that accounted for a big drop in indexed assets.
Once the merger of the pension plans of SBC Communications Inc. and Pacific Telesis Group was complete, total domestic indexed assets dropped more than 50% to $6.33 billion. In the previous survey the combined domestic indexed assets of the two plans were $13.13 billion.
While domestic indexed equity reported by defined benefit plans dropped a market-adjusted 6.7% the $77.815 billion in indexed bonds took the biggest hit, falling 20% when adjusted for the market.
The merger of SBC and PacTel accounted for part of the drop in domestic indexed bond assets. The combined plans reported $2.79 billion in the previous survey and report no assets in this category as of Sept. 30.
One apparent change can be chalked up to how the assets are reported. California Teachers, whose mortgage-backed securities and mortgages are indexed, listed those assets separately in the current survey, accounting for about $6.8 billion. In the previous survey, the fund included those assets in the domestic indexed bond figure.
Several plan sponsors with substantial index assets reported in the previous survey either did not fill out the indexed asset portion of the questionnaire or did not respond to the survey. Those funds account for a drop of about $12.326 billion in indexed assets from a year earlier.