More than half of the corporate defined benefit funds in Pensions & Investments' ranking of top 200 employee benefit funds declined in value during the year ended Sept. 30.
Public and union pension fund assets, on the other hand, increased in the same period.
The asset drop is due to several reasons:
* Corporate funds generally are more actively managed than large public funds, yet most active managers underperformed their indexes in the 12-month period;
* Corporate funds also generally had higher commitments to emerging markets than public or union funds, and those markets performed poorly; and
* Many corporations have overfunded plans and therefore can't contribute to them, while at the same time some have to make heavy pension payments.
Of the 80 corporations with defined benefit plans in the Top 200 for which comparisons were available, 46 had decreases in assets for the year. Three others had zero growth.
By contrast, 64, or 90% of the public defined benefit plans in the top 200 showed an increase; in seven cases, assets declined.
Also, assets of seven of nine Taft-Hartley defined benefit plans increased; two decreased.
Corporate pension funds' investments in midcap and small-cap stocks are to blame for some of the disparity between corporate and other pension funds.
Corporate funds "have been going more heavily into small-cap stocks, and most of the actively managed money underperformed" the Standard & Poor's 500 stock index, said Ethan Kra, a consultant with William M. Mercer Investment Consulting Inc., New York.
The Russell 2000 was down 19% for the year ended Sept. 30; the Wilshire 4500, down 12%.
The widening gap between contributions and benefit payments caught some companies, including General Motors Corp., Detroit. The GM defined benefit plan, with $67 billion in assets, lost 4% of its value, or $3.6 billion, in the year ended Sept. 30.
Spokesman Jim Finn said the loss was caused by a large outflow of benefit payments during the year. While GM contributed $1.1 billion to the fund, it paid out $4.9 billion in benefits, according to the survey.
AT&T's defined benefit plan assets fell 12.6% to $18.4 billion for the year ended Sept. 30.
A major early retirement incentive plan was responsible for most of the decline, according to Robert Angelica, president of AT&T Investment Management Co., Berkeley Heights, N.J.
"Many people had the option of taking their entire benefits in a lump-sum payment and many chose to do so," he said. "That took a lot of assets out of the plan."
Allan Emkin, managing director of Pension Consulting Alliance, Encino, Calif., said large lump-sum payments cause an asset drop, but, over time, they also decrease liabilities.
At GTE Corp., total defined benefit assets were $15.83 billion as of Sept. 30, a 1.6% decline from $16.1 billion a year earlier.
T. Britton Harris IV, president of GTE Investment Management Corp., Stamford, Conn., which oversees the pension fund, said GTE also had significant benefit payments and no contribution.
Atlanta-based Delta Air Lines Inc.'s defined benefit plan lost 5.8% of its value, falling to $8.2 billion as of Sept. 30 vs. $8.7 billion in 1997. James B. Taylor, chief investment officer-benefit trusts, said it happened because "of the stock market decline," and that the plan "had not much in the way of (corporate) contributions and a whole lot of payouts."
An official at Mobil Oil Corp., Fairfax, Va., said the pension fund's high benefit payout ratio and high emerging markets allocation contributed to the decline in assets. Mobil had $2.2 billion in defined benefit assets as of Sept. 30, down from $2.6 billion a year earlier.
"We have a higher benefit payout ratio than the average plan, because of the dynamics of the oil industry," with a large retirement contingent. He also said Mobil didn't make a contribution to its pension plan in 1998.
He estimates Mobil paid out 8% of plan assets in benefits.
In addition, he said, "We have a high asset allocation to emerging market equities and emerging markets debt . . . Both were very hard hit" by market declines.
He said the total allocation to emerging markets was more than 12% of total assets at the beginning of 1998 and now is about 10%.