Contributions to Pension Plans Increase Dramatically

CIEBA of AFP Survey Shows Defined Benefit Plan Contributions Tripled in 2002

JANUARY 7, 2004 – BETHESDA, MD – Despite difficult economic conditions, employer contributions to retirement plans increased significantly in 2002. A survey of members of the Committee on Investment of Employee Benefit Assets, an affiliate of the Association for Financial Professionals (CIEBA of AFP), revealed that plan sponsors contributed $21 billion to defined benefit (DB) plans in 2002, compared to an average of $5.9 billion over the previous four years.

CIEBA represents the country's largest pension funds and its members manage almost $1 trillion. The survey assessed 104 corporate plan sponsors responsible for the management of $577 billion in pension assets and $336 billion in DC plan assets. The plans in the survey cover 9.5 million DB plan participants and 5.5 million DC plan participants.

In defined contribution (DC) plans, employer and employee contributions per active employee totaled $6,600. This is the eighth consecutive year that per participant contributions increased.

The increase in retirement plan contributions took place as year-end assets declined. Both DB and DC plan assets decreased from beginning year levels by 14%. Poor market returns in 2002 contributed significantly to the decline.

The survey found that nearly all CIEBA member companies (94%) offer both DB and DC retirement plans. Eighty-six percent of all eligible workers were participants in a DC plan, nearly a 20% increase since 1993. The majority of employees eligible to participate in a DC plan were also covered by a DB plan.

"While some have questioned the willingness of plan sponsors to meet their benefit promises, the large increase in pension funding in 2002 contradicts this premise," said Gary Glynn, CIEBA chairman and president of U.S. Steel and Carnegie Pension Fund. "By offering both traditional pension plans and retirement savings plans and increasing support for both, CIEBA members demonstrate their continuing commitment to providing benefits that will assure retirement security for millions of participants."

Additional survey findings include:

Defined benefit plans represent the primary retirement plan type provided by CIEBA members. DB plans had 58% more assets, covered 74% more participants and paid out 64% more in benefits compared to DC plans.

• Total contributions to DB and DC plans represented 3.7% and 6.8% of year-end assets, respectively.
• Both DB and DC plan benefit payments represented 9% of year-end assets.
• Over half of the assets in both DB and DC plans (56%) were invested in equities. Both DB and DC plan equity allocations decreased from 2001, offset largely by increased fixed income allocations. For DB plans, this change in allocation appears to be largely a result of depressed equity prices and higher bond prices. For DC plans, the percentage of assets in diversified equity portfolios remained relatively stable, while the percentage dedicated to company stock dropped from 36% to 30%.
• Most DB plan assets (84%) were actively managed while 53% of DC plan assets had active management.
• CIEBA plan sponsors maintained efforts to make investment education available to their DC plan participants. Almost one-third offer some type of investment advice – individual finance planning assistance or interactive advisory programs. Most DC plan sponsors (98%) provided participant access and support via a Web site.

The Committee on Investment of Employee Benefit Assets is the voice of the Association for Financial Professionals on employee benefit plan asset management and investment issues.

The Association for Financial Professionals in Bethesda, Maryland supports more than 14,000 individual members from a wide range of industries through all stages of their careers in treasury and financial management. AFP is the preferred resource for financial professionals for continuing education, financial tools and publications, career development, certification, research, representation to legislators and regulators and the development of industry standards.