WILTON, Conn. — Returns of the pension plans and operating funds of U.S. non-profit health-care organizations were significantly lower in 2004 than in 2003, according to a new survey by Commonfund, Wilton.
The average defined benefit plan return of the 120 non-profit health-care entities that provided return information was 10% in 2004, compared with 18.1% in 2003, according to Commonfund. The average three-year annualized return of defined benefit plans was 6.9% as of Dec. 31 and 4% for the five-year period. The average actuarial assumption of sponsors of non-profit health-care companies defined benefit plans is 7.7% for 2005, a drop from 8.1% for 2004.
The average asset allocation of health-care defined benefit plans changed very little from 2003 to 2004. The average domestic equity allocation dropped to 47% in 2004 from 48% in 2003; fixed income dropped to 28% from 29%; international equity grew to an average of 15% from 13%; and alternative investments and cash/short-term securities remained constant at 9% and 1%, respectively.
But changes within individual asset classes were more marked. For example, for domestic equity, the average allocation to active large-cap stocks rose 10 percentage points to 65% in 2004, compared with the previous year, according to Commonfund data. The average allocation to midcap stocks rose to 18% from 10%, while the average investment in small-cap stocks dropped to 6% from 10%. The average allocation to indexed equities dropped to 11% from 20%.