Monday, March 14, 2005

Pension Plan Research Data

Greenwich Associates just posted press releases on two new research. We have discussed the fiduciary issues and risks related to company stock in previous posts. The asset allocation data is useful for benchmarking your DB plan assumed rate of return and asset mix.

Defined Contribution Plans

  • DC plan participants at large corps. still have 23% invested in company stock
  • Fewer $250MM or larger plans used company stock to make DC contributions in 04
  • DC participation rates topped 80% in 2004.
  • Demographic trends, potential pension accounting regulations, and economic realities will make DC plans the sole private-sector retirement vehicle.
  • Allocations to international equities within DC plans fall far short of those in DB portfolios.
  • Despite widespread adoption of Internet tools by plan sponsors, only a small fraction of participants use the Internet advice tools available to them.
  • Nearly two in five DC plan participants leaving small and midsize companies and a quarter of the departing participants at larger companies cashed out their plan assets in 2004.

2005 Asset allocation Study

  • U.S. funds decreased their expected rates of returns on all major asset classes
  • Fixed income expected returns fell from 5.9% in 2002 to 4.9% in 2004.
  • Equity return expectations dropped from 8.2% to 8.1% .
  • Equity real estate return expectations dropped from 8.2% in 2003 to 8.1% in 2004
  • Private equity return expectations fell from 11.3% to 11.1%.
  • Public funds lowered their hedge fund return expectations from 9.2% to 8.5% and corporate hedge fund expectations fell from 9.1% to 9%.
  • International equity allocations grew from 11% in 2003 to more than 13% in 2004.
  • Hedge fund allocations grew to 1.6% of plan assets over the past 12 months.
  • Real estate allocations increased from 3.6% to 3.8% of total plan assets.
  • Private equity allocations increased from 3% to 3.4% of total assets from 2003 to 2004


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