It's not that defined benefit plans wouldn't be missed. Many experts believe losing the quality and security of benefits provided by these plans would create a retirement crisis down the road.
But widespread freezing of corporate defined benefit plans wouldn't diminish the pool of assets available for investment in the short run. Corporate pension funds would continue to invest assets and pay out benefits for anywhere from 40 to 100 years — until the last retiree receives his or her final pension check.
Experts believe other pools of investible assets would replace corporate defined benefit plans, which have been shrinking in their relative importance.
Data from the Federal Reserve Board show that while corporate defined benefit plan assets rose 42%, to $1.81 trillion in the 10-year period ended Dec. 31, 2004, corporate 401(k) plans more than doubled, to $2.66 trillion. Individual retirement accounts grew far faster, rising 229% to $3.48 trillion during the 10-year span.
(Public and federal defined benefit plans totaled $2.07 trillion at year-end 2004, about the same as four years previously, the first time the Federal Reserve had charted their size.)
"As the portion of the total retirement asset pool represented by (defined benefit) plans has declined, there has not seemed to be any lack of free (capital) available for the investment markets," Dallas Salisbury, president and chief executive officer of the Employee Benefit Research Institute, Washington, said in an e-mail to Pensions & Investments.
Indeed, corporate pension funds have been net sellers of corporate equities every year since 1995, averaging $100.5 billion a year in sales, according to Federal Reserve data. In contrast, they made net purchases of stock averaging $10.75 billion a year between 1975 and 1984. Net purchases dropped to an average of $4.2 billion between 1985 and 1994.
As they were selling stocks, corporate defined benefit plans have been acquiring alternative assets, such as real estate, venture capital and private equity. Alternatives purchases averaged $7 billion a year between 1975 and 1984, $14.5 billion a year between 1985 and 1994, and $3.3 billion a year between 1995 and 2004.
Whether freezing defined benefit plans could further shrink the nation's already puny savings rate remains to be seen.
If 8% to 10% of employees' annual pay is invested in defined contribution plans — down from 15% to 20% in defined benefit plans — the national savings rate would suffer, said William F. Sharpe, a Nobel laureate in economics and founder of Financial Engines Inc., Palo Alto, Calif.
"That's the bigger issue: Are we going to collectively save even less?" If so, the United States could become more dependent on foreign investors, Mr. Sharpe said.