Assets of the largest 200 plans, meanwhile, rose 6.9% to $9.45 trillion, a little more than half the prior year's 13.4% drop.
Those outcomes would have seemed a lot to wish for when the latest survey period began on Oct. 1, 2022, amid widespread concerns about how high interest rates would need to rise to curb inflationary pressures and expectations of a looming recession.
The recession never came, thanks in part to faster-than-anticipated progress in tamping down inflation and free-spending U.S. consumers, bolstered by COVID-19 relief payments the government distributed to counter fallout from the pandemic.
Going into 2023, "we were definitely focused on a continuation" of the previous year's challenges, and a "possible recession scenario," said Jase Auby, CIO of the $181.7 billion Texas Teacher Retirement System, Austin.
In the event, "it was very gratifying to have the opposite happen," helped by a wave of new investment focused on artificial intelligence, Auby said.
The economy defied consensus calls by economists and pundits for a mild recession in 2023, agreed Michael Trotsky, executive director and CIO of the $95.2 billion Massachusetts Pension Reserves Investment Management board at a Jan. 30 investment committee meeting. Instead, inflation peaked and markets took off, with an "astounding" 26% gain for the S&P 500 — a humbling outcome for prognosticators, he added.
Bond prices, by contrast, ended little changed following a year of considerable volatility, with yields rising sharply early on in tandem with Fed rate hikes, only to retreat late in the year amid growing expectations for rate cuts in 2024. The Bloomberg U.S. Aggregate Bond index rose 0.64% over the 12 months through Sept. 30.
In other survey results, defined contribution assets for top 1,000 retirement plans — following a rare year of underperformance vis-a-vis defined benefit assets — reestablished their claim to being the fastest-growing segment of the U.S. retirement industry, jumping 12.4% to $5.32 trillion while DB assets were rising a modest 3.7% to $7.71 trillion.
At that pace, DC plan assets could surpass DB assets within five years' time.
The respective figures for the top 200 retirement plans showed defined contribution assets rising 12.1% to $3.18 trillion and defined benefit assets increasing 4.4% to $6.27 trillion — a trend accentuated by corporate sponsors' continued efforts to shrink DB pools that leave them shouldering the risks of ensuring adequate retirement outcomes for employees in favor of DC plans that shift those risks onto employees.
For the year, with few exceptions, increases in retirement assets for top 200 public defined benefit plans kept to a fairly tight range of 4.5% to 9%. The Connecticut Retirement Plans & Trust Funds' 17% gain to $50 billion in defined benefit assets made it an outlier, with roughly half of that windfall due to investment gains and the other half resulting largely from $2.5 billion in fiscal transfers approved unanimously by the state's legislature.
Year-on-year changes in retirement assets reported by corporate plans, by contrast, were all over the map, with 22 sponsors at one end of the spectrum finishing the period with a decline in assets while at the other end leading growth companies, including members of the so-called Magnificent Seven, saw surges of 20% to 30%.
That dispersion is unsurprising, given corporate sponsors' various mixes of growth assets and liability-driven investment hedges, noted Jonathan Camp, a Chicago-based managing principal with consulting firm Meketa Investment Group advising clients on LDI programs.
In the wake of last year's big rebound in equity markets, corporate clients with large exposures to growth assets would have reported relatively strong gains. But even clients with large LDI programs — liable to suffer a decline in assets in a rising rate environment — had reason to be "very, very happy with their results in 2023," as higher discount rates reduced their liabilities, leaving funded status intact, Camp said.
Many big corporate plans, meanwhile, have taken additional steps in recent years — such as pension risk transfers to insurance companies — to accelerate the drop in their DB assets, Camp noted.