The value of equities in pension plans and household portfolios fell $7.4 trillion, or 42%, in the year ended Oct. 9, according to a new issue brief by the Center for Retirement Research at Boston College.
Of that $7.4 trillion, roughly $2 trillion were in 401(k)s and IRAs, $1.9 trillion in public and private defined benefit plans, and $3.6 trillion in household non-pension assets. The Dow Jones Wilshire 5000 also declined by 42% in the time period.
Today the declines were divided equally between defined benefit and defined contribution plans, but in the future individuals will bear the full brunt of market turmoil as the shift to 401(k)s continues, wrote Alicia H. Munnell and Dan Muldoon, co-authors of the brief. Ms. Munnell is the director of the Center for Retirement Research at Boston College and the Peter F. Drucker Professor of Management Sciences at Boston Colleges Carroll School of Management. Mr. Muldoon is a research associate at the CRR.
Much of the reform discussion regarding private sector employer-sponsored pensions has focused on extending coverage. But the current financial tsunami also underlines the need to construct arrangements where the full market risk does not fall on pension participants.
The brief, Are Retirement Savings Too Exposed to Market Risk? is available at http://crr.bc.edu/images/stories/Briefs/ib_8-16.pdf.