Retirement plan assets rise 8.5%, pass $9 trillion

Total assets of the largest 1,000 U.S. retirement plans grew 8.5% to $9.055 trillion on Sept. 30, Pensions & Investments' annual survey found.

The defined contribution plans among the top 1,000 increased 12.8% to $3.022 trillion, double that of defined benefit plans, which increased 6.4% to $6.033 trillion.

Adjusted for the market, however, assets of the 1,000 largest retirement plans declined 1.2%, with DC assets growing a market-adjusted 2.8%, and DB assets falling a market-adjusted 3.1%.

Among the 200 largest plans, DC plan assets increased 11.25% to $1.789 trillion and DB plans, 6.6% to $4.75 trillion. Top 200 assets overall grew 7.8%, to $6.539 trillion.

But again, the funds showed an overall loss of 1.7% when adjusted for market returns. Within the top 200, DC assets increased a market-adjusted 1.9%, while DB assets fell a market-adjusted 3%.

Those comparative growth rates further cement the conclusion that DC represents the future of the U.S. retirement system, experts said.

“I think it's clear that DC is the backbone of the U.S. retirement system, and it's the way it's going to continue to move,” said Lorie Latham, Chicago-based senior investment consultant at Towers Watson & Co. “It's a maturing benefit and it's gaining a lot of attention from asset managers and consultants and plan sponsors, and I think, looking at the bigger picture, even regulatory bodies and legislators.”

Said Jennifer Flodin, defined contribution practice leader at Plan Sponsor Advisors in Chicago: “I think a couple of different things have contributed to the growth of DC over DB. I think the auto features have tremendously helped asset growth (and) inflow growth (for DC plans). On the flip side, you've got DB plans who are doing more lump-sum distributions to retirees; in addition some organizations might be reducing the overall contributions to their DB plans.”

Ms. Flodin mentioned DC plans' domestic investment emphasis as contributing to the growth.

Among the top 200, the average defined benefit plan allocation to domestic equities was 28.2%, while among defined contribution plans the average allocation to domestic equities totaled 42%.

During the year ended Sept. 30, a period in which the Standard & Poor's 500 stock index returned 19.7%, that domestic equity bias was a main contributor to asset growth; that is both a positive and a potential negative, with the possibility of being saddled with a single asset class or style lagging behind the market.

“We may see the introduction and the beginning of conversations of white-label funds within DC plans,” Ms. Flodin said, referring to the multimanager structure that plan sponsors can use to provide exposure to a broad asset class.

“Having that kind of structure and not having a singular manager could help for the next recession,” Ms. Flodin said.

“Hopefully that would protect the participants.”

Among defined benefit plans, there exists as well a disparity between the allocations of public DB plans and corporate DB plans. Among the top 200 plans, public plans as of Sept. 30 had an average 29.2% allocated to domestic equity compared to corporates' 23.7%.

Within the top 200, public DB plans represented $3.205 trillion in assets and corporate DB plans represented $1.187 trillion in assets as of Sept. 30.

There even exists a significant disparity in the asset allocations among corporate DB plans, said Bryan Ward, practice leader for corporate retirement at Aon Hewitt Investment Consulting Inc., Lincolnshire, Ill.

In calendar year 2014, for example, Mr. Ward said, the dispersion of overall returns by Aon Hewitt's corporate defined benefit plan clients was extremely wide, ranging from a high of 15.5% to a low of zero.

“That dispersion really reflects the various asset allocations that corporate DB plans have today,” Mr. Ward said.

“Anywhere from fully hedged, zero to 10% equity and the rest in some customized fixed-income strategies, to some that are still 75% to 80% equity.”

The former reflects the liability-driven investing that executives with closed and frozen plans have embraced, while the latter reflects a more traditional approach to asset allocation in open plans.

Overall, public DB plans have remained for the most part open plans, without the liability hedging that many corporate DB plans have instituted. Corporate DB plans among the top 200 on the whole had an average domestic fixed-income allocation of 33.2% as of Sept. 30, up from 32.4% the previous year.

Meanwhile, public DB plans in that universe had an average domestic fixed-income allocation of 20.8% as of Sept. 30, the same as the previous year.

The rest of the average allocation among corporate DB plans in the top 200 was 15.3% international equity, 7.5% alternatives investments, 6.5% private equity, 4.9% real estate equity, 3.5% global equity, 2.2% global/international fixed income, 2.1% cash and 1.1% other.

The rest of the average allocation among public DB plans in the top 200 was 19.7% international equity, 9.3% private equity, 7.8% real estate equity, 5% alternative investments, 2.4% global equity, 2.1% global/international fixed income, 1.8% cash and 1.9% other.

The latest P&I survey also saw a slight change in the five largest U.S. retirement plans.

The top-ranked U.S. retirement plan was the Federal Retirement Thrift Savings Plan, Washington, which reported $422.2 billion in total assets as of Sept. 30, up 12.6% from the previous year. It has been the top-ranked U.S. retirement plan since 2009, when it overtook CalPERS.

The Sacramento-based California Public Employees' Retirement System reported $296.74 billion in assets as of Sept. 30, up 8.7% in the period.

The rest of the top five were the California State Teachers' Retirement System, West Sacramento, at $186.95 billion as of Sept. 30, an 8.4% jump from the previous year; New York State Common Retirement Fund, Albany, $178.25 billion, also up 8.7%; and the New York City Retirement Systems, $158.7 billion, up 10.3%.

The five New York City pension funds supplanted the Florida State Board of Administration, Tallahassee, in the top five. Now ranked sixth, the FSBA reported $154.66 billion in retirement assets, a 5.7% increase from the previous year.

The largest corporate retirement plan belongs to Boeing Co., Chicago, whose combined DB and DC assets ranked eighth overall. As of Sept. 30, Boeing had $106.04 billion in combined DB and DC plan assets, $60.69 billion in DB and $45.35 billion in DC.

The largest union plan, the $36.61 billion Western Conference of Teamsters Pension Trust, Seattle, ranked 45th.

The largest defined contribution plan belonged to the Federal Thrift Savings Plan; all of its $422 billion plan assets are defined contribution. International Business Machines Corp., White Plains, N.Y., had the largest corporate DC plan, with $46.55 billion in assets as of Sept. 30, while the New York State Deferred Compensation Plan, Albany, was the largest public DC plan, with $17.6 billion.

Among defined benefit plans in the top 200, corporate DB plans continued to drop in the rankings.

General Motors Co., Detroit, has the largest corporate DB plan in the U.S., with $67.1 billion as of Sept. 30, but slipped in the rankings to 15th among DB plans in the top 200, from 12th the previous year. (That year-earlier ranking was the first time in the history of P&I's survey that a corporate DB plan was not in the overall top 10 DB plan rankings, after GM's 2012 group annuity purchase from Prudential life Insurance Co. to unload $28 billion in DB plan liabilities.)

Other findings of the survey include:

Defined benefit plan assets accounted for 72.6% of the assets in the top 200 U.S. retirement plans, compared to 27.4% for defined contribution plans;

Separate accounts represented 72.8% of the assets in DB plans among the top 200, while commingled vehicles represented 25.8%, mutual funds, 1.3%, and exchange-traded funds, 0.1%.

Hybrid plans among the top 200 U.S. DB plans had assets of $188.1 billion as of Sept. 30, a 14.9% increase from the previous year; and

Employer contributions among the top 200 DB plans rose slightly, 3% to $104.6 billion, while benefits paid totaled $232.8 billion, up 4.3% from the previous year.