U.S. pension funds dodged a number of bullets, including surging oil prices and a string of Fed interest rate hikes, to post a third consecutive year of double-digit asset growth for the year ended Sept. 30.
Despite the good news, the prospect of stingier capital markets and looming accounting rule changes for corporate pension funds isn't putting pension executives in a celebratory mood.
For the 12 months ended Sept. 30, assets of the 200 largest U.S. retirement plan sponsors climbed 11.7% to $4.52 trillion, according to Pensions & Investments' latest annual survey. That advance followed gains of 11% in the previous survey and 15% for the year ended Sept. 30, 2003.
Assets of the top 1,000 U.S. retirement plans, meanwhile, climbed 11.8%, to $5.99 trillion, following previous consecutive gains of 10.6% and 11.8%.
Defined contribution plans grew slightly more than defined benefit plans. Among the top 200 plans, defined contribution plans grew 12.4% while defined benefit plans rose 11.5%. Among the top 1,000, the increases were 13.1% and 11.4%, respectively.
Those three fat years have helped offset an equal stretch of painful losses between 2000 and 2002, after the equity market's technology bubble burst.
The surprising resilience of capital markets helped fuel the latest pension gains. Considering all the risk factors in play, including oil, the Fed rate hikes, the war in Iraq and terrorist strikes in Europe, it was a "Goldilocks economy," said Rich Nuzum, national business leader for Mercer Investment Consulting, New York. Equities, for the most part, "exceeded expectations, without bonds getting hammered," he said.
For the 12 months through September, the Russell 3000 benchmark index, a broad measure of U.S. equities, climbed 14.6%; the Morgan Stanley Capital International Europe Australasia Far East index of international developed market equities surged 26.3%; the U.S. bond-focused Lehman Aggregate benchmark rose 2.8%; and key indexes for alternatives such as real estate and private equity grew more than 19%.