Pension Assets Grow 12.4 Percent

Assets in the biggest corporate retirement plans swelled by 12.4 percent in 2007, with defined-contribution plans growing by 13.6 percent versus an 11.4 percent gain for traditional defined-benefit pensions, according to an annual survey of the 1,000 largest U.S. retirement plans by Workforce Management’s sister publications Financial Week and Pensions & Investments.

These corporate growth rates, however, are less impressive than the average increases seen at public plans, where cumulative retirement assets grew by 14.6 percent. That could have something to do with the risk appetites of corporate versus public plans. The average corporate defined-benefit plan had 29.6 percent of its assets in domestic and foreign fixed-income and cash holdings, while the average public defined-benefit plan’s bond and cash investments totaled just 25.4 percent of assets.

Overall, the 1,000 largest retirement plans’ assets increased by 13.5 percent during the 12 months ended September 30, 2007. That’s the largest one-year increase for P&I’s top 1,000 since a 21 percent increase recorded in 1997.

Still, the record isn’t much to brag about: Over the same 12 months, the S&P 500 returned more than 16.4 percent. Bonds also turned in decent returns, with the Lehman Bros. aggregate index up 5.1 percent.

Through the end of September, “you had all the markets performing well, real estate hadn’t gotten hammered yet, and the emerging markets did very well,” says Joseph E. Finn, principal and managing director at Punter Southall & Co.

Since the end of the third quarter, of course, U.S. stocks have tanked: The S&P 500 was down more than 12 percent as of late last week.

“None of my clients are sitting and patting themselves on the back,” says Steve Holmes, president of pension consulting firm Summit Strategies Group. “Now the theme is, ‘What can we do to protect these gains of the past three to five years.’ ”

Corporate plans are 65 percent bigger now than they were five years ago. With an annualized 11.2 percent increase, companies’ defined-contribution plans have grown at a faster clip than their defined-benefit brethren, which increased by an average 9.9 percent a year since 2002. From September 2002 through September 30, 2007, the S&P 500’s cumulative growth rate topped 15.5 percent a year, and the Lehman aggregate was up by an annual average of 4.5 percent.

“You’re in a five-year, major financial market increase,” Holmes says. “But I get the sense that everything that is going on is going to come to a halt. Many people are saying if we wind up flat [in 2008], we’d be happy.”

Not every corporate plan had a great showing in 2007.

Of the 599 companies for which year-over-year growth data are available, 71 had retirement plans whose total assets declined over the 12-month period. And 11 of those companies, including Halliburton (assets down 27.8 percent) and New York Life Insurance (down 16.4 percent), saw double-digit drops. The clear loser: Tyco, with a 56 percent asset decline.

The number of defined-benefit losers totaled 77, including Delta Air Lines (-21.5 percent), Hewlett-Packard (-19.9 percent) and Fortune Brands (-18 percent). Eighty-seven DC plans declined in size, including NCR (-18.4 percent), Pitney Bowes (-12.1 percent) and Macy’s (-11.9 percent).

On the flip side, many plans saw assets balloon last year. Total assets grew by more than 20 percent at 106 companies, including Burlington Northern Santa Fe (up 86.6 percent), Costco Wholesale Corp. (72.8 percent) and Cisco Systems (64.5 percent).

Defined-benefit plans at 36 companies expanded by more than a third, including those at Schlumberger (75.8 percent), FMR Corp. (58.4 percent) and Exxon Mobil (42.4 percent). And 50 defined-contribution plans surged by more than a third, including NYSE Group (129.2 percent), Ernst & Young (47.2 percent) and Pfizer (43.9 percent).

By Tara Kalwarsk of Financial Week and Jay Cooper of Pensions & Investments, sister publications of Workforce Management. To comment, e-mail editors@workforce.com.