A year after climbing over the $4 trillion mark, assets of America's 200 largest retirement plans tumbled 14.4% to $3.5 trillion, Pensions & Investments' annual survey shows.
Assets of the largest 1,000 funds, which had topped $5 trillion, slid 12.7% to $4.8 billion.
"The snapshot ... is of one of the worst one-year time periods we've ever had," said Janine Baldridge, director-client relationships in the consulting arm of the Frank Russell Co., Tacoma, Wash. She attributed the horrible showing to the equity markets' negative returns as well as the survey period ending on Sept. 30, only two weeks after markets reopened following the Sept. 11 terrorist attacks.
Indeed, it was the funds' stock exposure that did them in growth-wise.
Among defined benefit plans, the aggregate allocation to domestic equities dropped about four percentage points, to 43.2% for the top 200 and 44% for the top 1,000. International equity exposure was down less than one percentage point for both the top 200 and top 1,000. Yet the decline in equity allocations was less than would have been expected from the market drop, suggesting some plan sponsors rebalanced toward their target equity exposure.
"I have a feeling there's ... a mix of plans that range between disciplined rebalancing procedures and letting the trend unfold," said Brian Hersey, investment director of Watson Wyatt Investment Consulting, Chicago.
DC stock exposure
Equity exposure declined more sharply (about seven percentage points) among defined contribution plans. The average defined contribution plan in the top 200 had a 64% allocation to equities, including sponsoring company stock, as of Sept. 30; the average top 1,000 plan had a 61% exposure.
"In 2001, we didn't see the same kinds of shifts out of stocks (as) 1998," said Ms. Baldridge, who said 1998 was a year when plan participants moved a significant amount of assets out of equities. She added plan participants have more market savvy now and are less tempted to make shifts in asset allocation after a short period of negative returns.
On the defined benefit side, fixed-income allocations rose about three percentage points; real estate equity, about one point; and private equity, about a half point.
Allocations to other asset classes remained virtually unchanged.
Only nine sponsors among last year's top 200 showed asset growth; of those, six were involved in mergers and acquisitions.
Bell Atlantic Corp., which ranked 22nd last year, and GTE Corp., which ranked 45th, completed their merger and became Verizon Corp. The new company is the third-largest corporate plan sponsor and the 11th largest plan sponsor overall.
Commonwealth Edison Co., a subsidiary of Unicom Corp., and Peco Energy merged to become 109th ranked Exelon Corp. Commonwealth Edison was the 171st largest plan and Peco, the 359th largest, a year earlier.
Other plans showing asset gains due to M&A activity were Northrop Grumman Corp., which added the assets of Litton Industries; Philip Morris Cos. Inc., which acquired Nabisco Foods Inc.; Dow Chemical Co., which merged with Union Carbide Corp.; International Paper Co., which merged with Champion International Corp.; and Wachovia Corp., which combined with First Union Corp. to become the 147th largest employee benefit fund. Xcel Energy Inc., at 185, is the combined Northern States Power Co., which was 287th, and New Century Energies, which was 443rd.
Growth at General Dynamics
Only one corporate plan sponsor - General Dynamics Corp. -reported growth without any M&A activity. The company vaulted 14 slots to become the 95th largest plan sponsor after its total assets increased $325 million, or 3.5%.
A conservative defined benefit asset mix (73% fixed income and 27% stocks) helped. Also, the company's stock, to which the defined contribution plan had a 36% exposure, increased in value 40.3%.
"That would be the two main drivers," said Joe Gallagher, vice president of Fiduciary Asset Management Co., St. Louis, the main fiduciary of General Dynamics' plans.
Among those new to the top 200: Compaq Computer Corp., ranking at 159; Monsanto, 167; Tribune Co., 189; Electronic Data Systems, 190; Operating Engineers Local 3, 195; the California Savings Plus plan, 196; and the New Hampshire Retirement System at 200.
Two public funds that showed asset increases are the $8.8 billion Texas Municiapl Retirement System, and the $20.8 billion South Carolina Retirement System.
Texas Municipal's ranking jumped to 100 from 139 after its total assets increased $1.7 billion for the year ended Sept. 30. All assets are invested in internally managed fixed income. "(The returns) fly in the face of the idea the best returns come from diversification," said Mike Beuerlein, investment operations officer.
Their high allocations to domestic fixed income make both the Texas and South Carolina funds radically different from their corporate counterparte, said Mr. Dieschbourg. South Carolina's bond allocation was 60% of total assets. Mr. Dieschbourg said his clients typically have 60% or more in equities.