Outlook 2005: Retirement plans
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Coller Capital collects $9 billion with latest secondaries fund
      Directional signs respresenting types of traditional and alternative investments
      Setter: Alternative secondary deals drop 27.7% in 2020
      Kennedy Lewis raises $2.1 billion for latest opportunistic credit fund
    • Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
      Amy Hsiang
      Meketa picks new public markets manager research director
      Will Martindale
      Cardano Group chooses group head of sustainability
    • CalSTRS participant retirements jump in second half of 2020
      Mexico manages breakthrough in virus-marred year
      Coronavirus throwing retirement systems into a deepening hole
      COVID-19 hinders emerging Europe's hopes for DC boost
    • Signage outside the Blackstone Group Inc. headquarters in New York on July 13, 2019
      Blackstone to sell Alight to SPAC in $7.3 billion deal
      Jan Jacobson
      High-court ruling thwarts ERISA stock-drop lawsuits
      Joni Tibbetts
      Principal counts on advisers to get word out on PEPs
      Kenneth J. Munro III
      Empower names new national sales director
    • Emissions rise from a coal-fired power plant
      NYC pension funds to divest fossil fuels
      A Eurosystem monetary authority sign outside the European Central Bank headquarters in Frankfurt on March 7, 2019
      ECB considers going greener in staff pension fund
      Investors offer advice to ministers for U.K.’s low-carbon ambitions
      Shannon O'Leary
      Resisting diversity could lead to termination
    • Hawk's Nest dam
      Brookfield donates golf course for firefighter training center
      Gifford Fong
      Old ties help bring local version of JOIM to mainland China
      Ryan Tedder
      Strike up the band: KKR fund takes majority stake in Ryan Tedder catalog
      Helen Dean
      NEST’s Helen Dean earns U.K. recognition for service
    • Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
      The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
    • Newly appointed Treasury Secretary Janet Yellen
      Senate confirms Yellen as Treasury secretary
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Indiana roofers union pension fund applies for MPRA benefit cuts
      SEI picks Delaware Investments as equity fund subadviser
    • CI Financial to acquire Segall Bryant
      watch video
      1:33
      A look at hiring activity in 2020
      Caroline Feeney
      Prudential Financial adds CEO of insurance and retirement
      HSBC GAM selects heads of health-care equity investment team
    • Canadian plans cap 2020 with 10% annual return – Northern Trust
      CalSTRS participant retirements jump in second half of 2020
      A sign outside California Public Employees' Retirement System headquarters in Sacramento
      CalPERS expecting to announce new CIO this quarter
      Marcie Frost
      California pension funds learning from experience
    • Jeffrey Epstein and Leon Black
      Apollo Global CEO Leon Black to retire after Epstein review
      Caroline Feeney
      Prudential Financial adds CEO of insurance and retirement
      HSBC GAM selects heads of health-care equity investment team
      Rene Buehlmann
      Standard Life Aberdeen makes senior leadership changes in APAC, U.K. and EMEA
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Chiang Ling Ng
      Hines hires first head of Asia-Pacific real estate investments
      Brand new apartment building on sunny day in spring with blooming trees
      Real estate returns forecast to trend lower – report
      Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Retirement in emerging markets
      Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
      Los Angeles school district seeks third-party administrators 403(b) plan
      Los Angeles County Employees casting for private equity consultant
    • SEI picks Delaware Investments as equity fund subadviser
      Trenton, Mich., swings to Fidelity to run $20 million in large-cap equities
      Los Angeles school district seeks third-party administrators 403(b) plan
      Los Angeles County Employees casting for private equity consultant
    • Co-Administration, Financial Advisory, Transfer Agent, and Custodial Services
      Maryland State Retirement and Pension System
      Master Custodian and Related Services
      Transition Management Services
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
    • GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
      Gold Outlook 2021
      Bond ETFs show maturity during Covid market mayhem
      2021 Outlook: A rousing recovery
    • Charles E.F. MIllard
      Commentary: It’s time to make 401(k) plans into real pension plans
      Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:33
      A look at hiring activity in 2020
      watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
    • POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for January 2021
      Riskwatch for Q4 2020
      Graphic: A look at hiring activity in 2020
      Taiwan Semiconductor’s No. 1 in the emerging markets book
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      Lessons From 2020: OCIO Model Passes Major Test of Governance
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
January 10, 2005 12:00 AM

Outlook 2005: Retirement plans

More water tossed on traditional DB plan

Phyllis Feinberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The defined benefit pension world got another blow when International Business Machines Corp., White Plains, N.Y., announced in December that it was closing its cash balance plan to employees joining the company after Jan. 1 and would only offer new employees a 401(k) plan.

    Will more companies follow IBM's lead this year?

    "IBM made a business decision given the regulatory uncertainty," said Stephen Mirante, a consultant with Watson Wyatt Worldwide, New York.

    "It (IBM's decision) is indicative of the frustration of many sponsors of defined benefit plans" — frustration by what sponsors view as over-regulation of defined benefit plans in general and frustration by cash balance plan sponsors over the lack of guidance from the federal government.

    "If we don't get clarity on the rules (for cash balance plans in 2005) we'll see more plan sponsors moving in that direction," he added.

    "Sometimes we lose touch with the fact that the system is voluntary."

    Because of the "cash balance limbo" referred to by Howard Fine, a consultant with Mellon's Human Resources and Investor Solutions, New York, the formation of these hybrid plans has been on hold until lawmakers and regulators resolve the issues.

    "You won't see any more (cash balance) plans until you get a resolution to the problems," said Mr. Fine, adding that there may be some resolution of the cash balance debate in 2005.

    "The debate (over them) is coming to the foreground," Mr. Fine said.

    Abandoning DB

    "For some time now, companies have been moving away from defined benefit plans and toward 401(k) plans or cash balance plans as the work force becomes more mobile," said W. Allen Reed, chief executive officer of General Motors Asset Management, New York, which manages $89 billion.

    "Only time will tell how effective these alternative plans will be in providing long-term retirement security.

    "Cash balance plans offer an alternative to companies looking to continue to provide retirement benefits while still remaining competitive and addressing the needs of a more mobile work force," said Mr. Reed.

    "Given the less favorable accounting treatment and more stringent funding requirements for defined benefit plans, it is likely that we will see more companies offering these alternatives in the coming years."

    The Financial Accounting Standard Board's impending rule change on mark-to-market accounting — which would force companies to carry their defined benefit plans' stock and bond investments at their daily market value on their balance sheets — concerns William F. Quinn, chief executive officer of AMR Investment Services Inc., Fort Worth, Texas. AMR Investment oversees the $7 billion American Airlines Inc. defined benefit plan.

    "It would be a big negative with the volatility of earnings that it would cause," he said. "It would make (companies) rethink if they should have defined benefit plans."

    But the picture for defined benefit plans isn't all bleak. Some big plan sponsors think that the underfunding that has plagued many large defined benefit plans will improve in 2005.

    "The recent funding crisis for many plan sponsors was triggered by poor asset returns and historically low interest rates," said GM's Mr. Reed.

    "If asset returns continue to perform in line with historical norms, and interest rates return to more normal levels, the funding pressures should ease."

    John Myers, president and chief executive officer of GE Asset Management, Stamford, Conn., which manages $66 billion in pension assets for General Electric Co., Stamford, also thinks funding pressures will ease in 2005.

    Some good news

    "Defined benefit plans should be able to meet their expected returns as long as they're reasonable," he said.

    Mr. Myers said that the median assumed rate of return for large defined benefit plans was 8%BD;%, which he thinks is reasonable. Equity returns on a global basis will be better than 8%BD;% over the long term, he said.

    Not that defined contribution plans don't have their own problems. Plan sponsors will closely scrutinize the fees they and their participants pay in 2005. Helping plan participants pick the investments that will best serve their retirement needs will have many plan sponsors trying a variety of methods to educate and help participants make better choices in 2005.

    Lori Lucas, director of participant research at Hewitt Associates, Lincolnshire, Ill., said defined contribution plan sponsors will be looking for ways to reduce fees, sparked by the scandals that have shed a light on fees that plan sponsors and their participants are paying.

    "I would be very surprised if fees didn't become more transparent in 2005," said Ron Peyton, president of Callan Associates, San Francisco.

    Plan sponsors "will see that costs are allocated appropriately" in 2005, Mr. Peyton added.

    Also, more large companies will choose one administrator for their defined benefit and defined contribution plans in 2005, according to Stephen Deschenes, executive vice president of Fidelity Institutional Retirement Services, Boston.

    "Total retirement outsourcing with the administration of defined benefit and defined contribution plans combined will occur more in 2005" because companies are looking to consolidate the administration of the plans, said Mr. Deschenes.

    Mr. Deschenes acknowledged that Fidelity offers total retirement outsourcing and wants to expand the business.

    The rates of return on defined contribution plans vary along with the account holder's investment choices, and DC plan sponsors will continue their efforts to help participants make better choices and get better results in 2005.

    David Wray, president of the Profit Sharing/401(k) Council of America, Chicago, thinks 2005 will be the beginning for more DC plan sponsors to provide automatic solutions to plan participants. "Professionally managed options in (401(k)) plans will be the biggest voluntary change to the system" in 2005, he said. He said offering risk-based and lifestyle funds will help plan participants better manage their accounts.

    (correction appended)

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    GP-LED OPPORTUNITIES AT THE SMALLER END OF THE MARKET
    Gold Outlook 2021
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    2021 Outlook: A rousing recovery
    Climate change and emerging markets after Covid-19
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center