WASHINGTON - For the first time in years, private pension funds and retirement plans recorded more money coming in than flowing out in benefits, thanks to the sizable contributions made in 2002.
Pension funds and retirement plans recorded a net inflow of $9.7 billion last year, following net outflows of $118.2 billion in 2001 and $9.6 billion in 2000, according to the latest data from the Federal Reserve Board, Washington.
And while private-sector defined benefit pension plans still recorded net outflows of $22.7 billion last year, that figure would have been much higher had it not been for the billions of dollars sponsors pumped into the plans to make up for the stock market's steep decline, said Paul Smith, an economist at the Federal Reserve Board, who compiled the central bank's latest flow of funds data.
"Employers have really started cranking up contributions," he said.
Private defined contribution plans continued to record net inflows - $32.4 billion in 2002 - as participants shoveled money in despite the market's downturn.
Combined, private-sector pension and retirement assets totaled $3.68 trillion in 2002, down a hefty $944 billion or 20.4% off the peak of $4.63 trillion in 1999 and 11.6% from 2001.
Public pension plans, which usually cover a younger work force than private plans, continued to contribute more money than they paid out in benefits. In 2002, they recorded a net inflow of $32.4 billion, the same amount recorded by private defined contribution plans.
The infusion of money helped slow the decline in systemwide assets, which includes the Federal Thrift Savings Plan, the College Retirement Equities Fund, and pension assets in life insurance companies. Total private and public pension and retirement plan assets fell 8.7% to $7.13 trillion in 2002 from $7.81 trillion in 2001, far less than the 22.1% drop in the Standard & Poor's 500 stock index last year.
(The figures exclude $800.3 billion in assets of the federal Civil Service Retirement and Disability Fund, Railroad Retirement Board, Military Retirement Fund, Judicial Retirement Funds and the Foreign Service Retirement and Disability Fund.)
"Companies that have been skating along without making any contributions now are putting in more money. ... In 2003, I imagine more companies will put in money than in 2002," said Ira Siegler, a principal in the Secaucus, N.J. office of Buck Consultants Inc.
The Fed previously estimated total plan assets of $8.7 trillion in 2001, but revised its estimates last year. The central bank's numbers are projected from 1998 financial statements of private pension funds filed with federal regulators and tracked against 2002 data from the Committee on Investment of Employee Benefit Assets, whose members represent about 40% of total pension assets, said Julia Coronado, a Federal Reserve Board economist.
Public plans better off
Public pension funds weathered the stormy markets better than private plans, in part because public plan sponsors typically make steady contributions every year.
Public pension fund assets dropped to $1.96 trillion in 2002, a 9.7% decline from $2.17 trillion in 2001, while private pension fund assets fell 11.6% to $3.68 trillion, according to the central bank's estimates.
Equities accounted for 43.2% of the total $1.58 trillion in private pension fund assets and 51.4% of the $1.96 trillion in public pension assets. (The private pension assets include the $102.3 billion of Federal Thrift Savings Plan and CREF but exclude pension and retirement assets at life insurance companies.)
Public pension fund assets also might have been helped by diligent rebalancing: The funds purchased $76.7 billion in equities when the market fell in the third quarter of 2002 and took advantage of the fourth quarter rebound by selling off $5.3 billion, Mr. Smith, the Fed economist, said.
Private defined contribution plans also survived the steep decline in the stock market better than defined benefit plans last year because participants poured money into conservative investments such as bonds and guaranteed insurance contracts while pulling money out of equities. Because of this more conservative investment allocation, private defined contribution plans fell to $2.1 billion in 2002, losing only 10.7% in assets from the $2.35 trillion held in 2001. The data show DC plan participants bought $13.8 billion in bond investments and $13.7 billion in GICs, and sold off $29.9 billion in equities. The rise in GIC investments is the biggest increase that sector has seen since 1990.
Although comparable data are not yet available for individual retirement accounts, the Fed data show that IRAs took in $124.3 billion in 2001, the latest year for which statistics are available.
The Fed's data are "an affirmation of the individual trend, the melding of the institutional and individual marketplace," noted Peter H. Starr, principal of an eponymous research firm in Newton, Mass. Consequently, while institutional money managers continue to manage huge chunks of money, the Fed's data are a call to action for them to ensure they are represented in the individual retirement market as well, he said.