Only one corporate pension fund remains among the nation's 10 largest pension funds, according to Pensions & Investments' top 1,000 pension funds listing. That is the General Motors Corp. pension fund.
That there is only one is unfortunate for the pension fund community and, perhaps, the capital markets, because corporate pension fund executives have been the investment innovators among their public and union plan counterparts.
Corporate pension executives have brought dynamism to the operation of pension funds that was lacking until at least the 1980s. Corporate executives have been leaders in moving to new asset classes, starting with domestic equities in the 1950s and continuing with international investing, alternatives such as real estate, and derivatives.
Corporate pension executives in effect financed the development of the independent investment management industry by becoming the first clients of the startup firms. These startups, often formed by portfolio managers and analysts leaving trust departments and insurance companies, led the development of specialized approaches such as growth and value, large cap, midcap and small cap.
Later, the 401(k) plan was created for, and quickly adopted by, corporations. Corporations also spawned the development of cash-balance plans, a controversial alternative to final-pay plans, yet one that might have saved the defined benefit program at some companies.
Corporations didn't just move into new asset classes and new portfolio strategies based on gut feeling. Academic theory often lay behind these moves, and the corporate plans put theory into practice. The Employee Retirement Income Security Act of 1974 helped push corporations to more sophisticated modeling, applying academic research and promoting the creation of empirical databases by custodians and consultants that fueled better analysis.
GM, for example, became a leader in the early 1980s, with significant moves early into hedge funds and private equity investing. It now has $73.6 billion in domestic retirement assets.
The fall of corporations from the top 10 could indicate the working of the market. Many formerly large companies, such as AT&T Corp., have spun off other companies, and some of the parent's pension assets were spun off as well.
But the decline mostly reflects the waning fortunes of big corporations, and the lack of faith by newer companies in defined benefit plans, which have dominated the top 1,000, despite the growth of 401(k) and other defined contribution plans.
FedEx Corp., founded only in 1973, created a defined benefit plan, along with a defined contribution plan, and now ranks 91st among the largest plans. But few newer corporations have taken that route. Imagine where Microsoft Corp., whose stock went public in the 1980s and now is the biggest company in terms of market value in the Standard & Poor's 500, might rank today if it had created a defined benefit plan. It ranks 366th with almost $2.2 billion in defined contribution assets.
Of course, not all the innovating was done by corporate pension funds. Once they were freed up to invest outside of "legal lists" of investments, some public pension funds also pioneered, especially those of Washington and Oregon, which were early leveraged buyout investors. Now, the country's largest pension fund, the California Public Employees' Retirement System, is a leader in investment management innovation, even though it wasn't a standalone pension fund until the mid-1980s.
Plus, corporate funds have been shameful laggards in proxy voting and corporate governance activism, surrendering that leadership to public and union funds.
Nevertheless, a waning of corporate pension fund leadership might lead to a slowing of pension fund innovation. Even though public funds have stepped up over the years as innovators, a further decline in the number and size of corporate pension funds would mean fewer large funds willing to serve as incubators for new investment theories and products. That is not good for the capital markets and the economy.