U.S. retirement plans could not escape historically negative equity and fixed-income markets during the year ended Sept. 30 and posted the highest-percentage asset losses in nearly half a century of Pensions & Investments' annual surveys.
In the year ended Sept. 30, the 1,000 largest U.S. retirement funds saw their assets plummet to $12.16 trillion, a record-setting 13.9% loss from a year earlier when the universe had reached an all-time high of $14.13 trillion.
That previous high was the result of a banner year of spectacularly strong returns in public and private equity and other alternative investment strategies, along with higher contributions to defined benefit and defined contribution plans.
The most recent year, however, represented nearly a direct opposite of the prior year's euphoria, with every public equity and fixed- income asset class seeing significant losses. Perhaps most remarkably, defined contribution plan assets fell 14.5% to $4.73 trillion vs. the 13.6% decline of defined benefit plan assets to $7.43 trillion, a stark reversal of a decadeslong trend that has seen DC plans outpace DB growth in part due to 401(k)s emerging as the primary corporate retirement plan.
For the year ended Sept. 30, the Russell 3000 index and Bloomberg U.S. Aggregate Bond index returned -17.6% and -14.6%, respectively."We think a lot of returns were pulled forward in 2020 and 2021, just given the extraordinary stimulus that was put into the economy" as a result of the COVID-19 pandemic, said Jeffrey MacLean, CEO of Verus Advisory Inc., El Segundo, Calif.
"So, you know the fallout from that is that the returns had to come from some years, and obviously 2022 got hit pretty hard. At a higher level, our markets have been experiencing lower and lower interest rates gradually for decades, and that regime changed very abruptly in 2022 when the Fed had no choice but to respond to inflationary pressures throughout the economy," Mr. MacLean said.
"Certainly (there were) the supply chain disruptions of COVID, but also the sheer volume of money that was printed and is now circulating throughout the economy has caused inflation to be higher than it's been in really over 30 years," he said.