Retirement plans face challenging 2008

HR Magazine,  June, 2008  by Stephen Miller

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Despite stock market downturns, U.S. retirement plan assets have nearly doubled in value since 1997, Watson Wyatt reports. The immediate outlook, however, appears less rosy.

The consultancy's 2008 Global Pensions Asset Study found that assets in U.S. retirement plans increased from $7.9 trillion in 1997 to $15 trillion in 2007, based on a compound annual growth rate of 6.7 percent since 1997.

U.S. short-term returns have been even better, with retirement assets growing 8.3 percent in 2007 and an average of 10.9 percent annually over the five-year period ending in 2007.

Going forward, the current market will be challenging for retirement plan investors, says Carl Hess, director of Watson Wyatt's investment consulting in North America, who expects to see "declines in asset values over the next year if the market turmoil continues."

In the United States, most retirement plan assets, according to Watson Wyatt, are now invested in:

* Equities, stocks and stock funds, 59 percent.

* Fixed income, bonds and bond funds or cash and stable-value funds, 23 percent.

* Alternative assets, including hedge funds, private equity, real estate, commodities and infrastructure, 17 percent.

While the amount in equities has remained stable, Watson Wyatt found, pension holdings in bonds declined from 33 percent in 1997, although bond investments have seen a more recent up tick. Meanwhile, the portion of pension assets in alternative assets nearly doubled--up from 9 percent in 1997.

"The move to alternatives is helping pension plan sponsors get more out of their assets while reducing overall risk," says Mark Ruloff, director of asset allocation at Watson Wyatt.

Retirement Plan Growth Slowing

In 11 countries with the largest workplace retirement systems, Watson
Wyatt found that retirement asset values are declining.

Average annual growth rate 1997-2007  7.4%
Average annual growth rate 2002-2007  10.5
Estimated annual growth rate 2007        2

Source: Watson Wyatt 2008 Global Pension Assets Study

Note: Table made from bar graph.

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