Corporate Pension Plans Healthy, CIEBA Survey Reveals

2006 Benefit Payments Total $119 Billion; CIEBA Members Manage More than $1.5 Trillion

December 18, 2007 – Bethesda, MD -- The vast majority of large corporate pension plans are financially healthy, according to a newly released survey conducted by the Committee on Investment of Employee Benefit Assets (CIEBA), an affiliate of the Association for Financial Professionals (AFP). After three years of consistent contributions and substantial investment gains, the average funded status of plans participating in the 2006 survey was 103 percent, based on accumulated benefit obligations (ABO).

CIEBA represents many of the nation’s largest private sector retirement funds and its members manage more than $1.5 trillion in retirement assets. The survey covers 112 corporate plan sponsors responsible for the management of $966 billion in defined benefit (DB) plan assets and $573 billion in defined contribution (DC) assets. Plans in the survey cover 11.5 million defined benefit plan participants and 5.6 million defined contribution plan participants.

Assets in both DB and DC plans increased during 2006 by 9 percent and 11 percent respectively. Plan increases were generally due to strong investment returns. However, 71 percent of the DB plans sponsors in the survey contributed over $27 billion to their plans. In the defined contribution plan arena, employer and employee contributions per active employee continued to increase. The combined contribution total per employee was $8,150, with employers contributing 29 percent of the total.

While the vast majority of CIEBA members sponsor both defined benefit and defined contribution plans, defined benefit plans continue to provide the bulk of retirement benefits to plan participants. DB plans had 68 percent more assets and paid out 53 percent more in benefits when compared with DC plans.

“This survey confirms that the massive changes in law adopted in 2006 were an overreaction to temporary conditions and that pension rules need to take into account the long-term nature of pension promises,” said William F. Quinn, chairman of CIEBA. “CIEBA members have demonstrated their commitment to assuring adequate retirement income for their employees. Unfortunately, many of the changes adopted in 2006 increase the short-term volatility of contributions, making continuing the pension commitment in the future much more difficult,” he concluded.

Additional survey findings include:

• Benefit payments totaled $119 billion in 2006, of which $72 billion was paid out of DB plans and $47 billion was paid out of DC plans.
• DB plan assets were invested as follows: 36 percent in U.S. equity, 21 percent in international equity; 29 percent in fixed income/cash and 14 percent in other investments. There was a small decrease in plan holdings of U.S. equities from 2005 to 2006 and small increases in fixed income and alternative investments.
• DC plan assets were invested as follows: 39 percent in diversified (U.S. and international) equity portfolios, 25 percent in employer stock, 23 percent in fixed income, 9 percent in balanced and life cycle funds and 4 percent in loans and other options. DC plan diversified equity allocations increased from the prior year, offset largely by decreased fixed income holding. Company stock holdings remained steady after several years of decline.
• Most DB assets (86 percent) were actively managed compared to 52 percent of DC assets.
• Almost all survey respondents (98 percent) offer a life cycle or balanced fund investment option in their DC plan. Auto enrollment was a feature in 37 percent of plans in the survey.
• Almost half (46 percent) of respondents offer individual financial planning assistance and/or interactive software advisory software programs.

The Committee on Investment of Employee Benefit Assets (CIEBA) is the voice of the Association for Financial Professionals (AFP) on employee benefit plan asset management and investment issues. CIEBA is a nationally recognized forum for ERISA-governed corporate pension plan sponsors on fiduciary and investment matters.

The Association for Financial Professionals (AFP) serves more than 16,000 individual members throughout all stages of their careers in treasury and financial management. Headquartered in Bethesda, MD, AFP provides professional certification, continuing education, research, development of industry standards, financial tools and publications, training and career development and representation to legislators and regulators. AFP’s global reach includes AFP of Canada, a membership organization and gtnews, a London-based, on-line resource for the treasury and finance community. AFP is the daily resource for its members to seek answers, solutions, best practices and collaboration with peers. For more information about AFP, visit www.AFPonline.org.