Pension, Health, and Welfare Funds

SIC 6371

Companies in this industry

Industry report:

Establishments primarily engaged in managing retirement, health, and welfare funds comprise what is commonly called the pension fund industry. Companies owning pension funds are called fund sponsors. Sponsors maintain funds for the purpose of meeting future obligations, such as benefit payments to retired employees. Some sponsors manage their own funds, or reserves, while others hire fund managers or consultants to conduct their investment activities.

Industry Snapshot

Total retirement plan assets in the United States amounted to $15.7 trillion in 2010, according to the Investment Company Institute. By the late 2000s, the oldest baby boomers were preparing to enter their retirement years, and the future of corporate pension programs was in serious jeopardy. Pension planning changed significantly in the 2000s as corporate-funded direct benefit plans declined in numbers and direct contribution plans increased in popularity.

As America continued to age, the issue of pension funding was expected to remain of national interest. In 2000, 12.4 percent of Americans were 65 and older, but by 2030 nearly 20 percent will be at least 65. By 2018, Social Security expenditures are expected to outpace payroll tax receipts. In addition, rising health care costs and extended life spans will add to the industry's importance.

Organization and Structure

Pension funds are essentially vehicles by which workers can save income generated during their careers to help them maintain a reasonable living standard when they retire. More than 80 percent of employers offer some type of savings plan that will provide pension or retirement benefits to at least some of their employees. In addition, workers can invest in pension vehicles such as life insurance or various tax-deferred annuities that act as funds.

Pension funds operate under the assumption that money, which the employer or employee places into the fund, will earn interest income at a rate greater than inflation. The more interest and savings that accrue over a period of time, the more money will be available to provide benefits for the employee at retirement. Pension funds are generally favored over most other long-term savings plans because they benefit from a favorable tax status. These tax laws allow employees to defer taxes on both their savings and the interest income that those savings produce.

Government Agencies.
Federal, state, county, and municipal governments all provide pension plans for their employees. Publicly owned corporations, such as the Tennessee Valley Authority, also fall into this category. In addition, the federally funded Old Age Survivors' Insurance (OASI) fund is included in this group. In the 2000s, state and federal public funds constituted approximately 26 percent of all pension assets. OASI had the largest membership of all government pension funds. This national program of social insurance is designed to cover all persons employed in the United States with the exception of clergy, some state employees, and most federal workers. Unlike national insurance programs in other countries, OASI entitlements are not based on need but on previous individual contributions. At the end of 2004 more than 159 million Americans were covered under OASI and about 92 percent of all Americans over the age of 65 were receiving benefits. According to the Social Security Administration, OASI's assets totaled about $2.3 million at the end of 2009.

Most federal employees who are not covered by OASI are included in the Civil Service Retirement System (CSRS) or Federal Employees Retirement System pension funds, which provide retirement, survivor, and disability benefits to career employees of the federal government. Participation in these plans is compulsory.

In mid-2010, federal government pension plans held total assets of $1.3 trillion, up from $799.2 billion in 2000 and $340.4 billion in 1990. State and local governments held assets in pension programs valued at $2.6 trillion in 2003, up from $2.1 trillion in 2000 and $800.6 billion in 1990.

Private Plans.
Private plans that employ fund managers exist in both the nonprofit and commercial sectors. Organizations in the nonprofit sector include churches and service associations, while commercial entities include for-profit establishments. Pension funds in the private sector, as well as some funds in the public sector, can be classified as either "defined benefit" or "defined contribution" plans. Defined benefit plans, once the most popular type, promise annuities beginning at retirement that are usually based on the worker's years of service and average wage during the last few years of employment. With a defined contribution plan, firms effectively contribute to an employee's savings account. The accumulated tax-preferred savings belong to the worker, who usually receives a lump sum at retirement. The most popular defined contribution plan in the early twenty-first century was the 401(k).

In mid-2010 defined benefit (DB) plan assets totaled $2.1 trillion, and defined contribution (DC) assets totaled $4.0 trillion, including 401(k) plans. Assets in Individual Retirement Accounts (IRAs), which are individual pension accounted sponsored by insurance companies, totaled $4.2 trillion. Annuity assets added another $1.5 trillion to the national pension savings.

To receive tax-preferred status for their private pension funds, managers must comply with Internal Revenue Service (IRS) regulations and guidelines. The Federal Employee Retirement Security Act (ERISA) of 1974 is the principal legislative tool used to govern pension funds. It imposes minimum funding requirements, primary fiduciary responsibilities, and disclosure criteria. For instance, a fund manager must show that its reserves cannot be diverted prior to the satisfaction of all liabilities and that it will not discriminate in favor of its more highly paid employees. Details about the fund must also be made known to employees or members.

An important element of the private pension fund market is the Pension Benefit Guaranty Corporation (PBGC), a government agency that pays retirement benefits up to a set maximum amount to retirees when a company defaults on its retirement benefit obligations to its members or their dependents. The PBGC insured the payments of more than 33.8 million workers and at the end of 2008, reported a $10.7 billion deficit.

Fund Management Structure.
Pension fund management entails two basic activities: serving members or employees covered by the plan and directing investment and management of asset reserves. The fundamental provisions of any pension plan sets forth rules of eligibility, conditions for the receipt of pensions, a pension benefit formula, and a source of contributions. Companies that sponsor funds usually place control of the funds with a corporate trustee. Trustees, or custodians, oversee the funds to ensure that they comply with federal regulations. Trustees also supervise investment decisions made by fund managers.

While many fund sponsors hire outside consulting and investment firms to assist with investment of their pension reserves, most also have fund managers in-house, or within their organization. The fund manager may, in turn, hire several other managers or consultants who specialize in various investment activities. Administration activities, such as handling fund members' needs and delivering payment services, are often handled separately by the fund sponsor.

A pension fund manager is charged with three basic duties: developing a financial profile of the fund, developing investment policies, and formalizing an investment program. The financial profile essentially describes the plan's funding structure. The funding structure consists of existing assets such as cash and investments, obligations for currently retired employees, obligations for future retirees, and expected future contributions by both employees and the fund sponsor. The plan's funding structure is influenced by several factors, including the growth stage of the company, estimates for future employee and profit growth, expected future investment returns, and future tax rates.

When developing investment policies, managers must adopt return objectives, risk constraints, and asset diversification requirements. These components, when properly synthesized, serve to minimize the risk of investment losses and ensure that the minimum return necessary to meet future obligations is realized.

Finally, the formalization of the investment program requires selection of an investment committee to review strategy; definition of an asset allocation plan; creation of a detailed investment portfolio strategy; and the determination of an effective means of monitoring, evaluating, and reporting investment results. For example, the manager must determine the proportion of assets that are placed into stocks, bonds, real estate, international assets, or other investment vehicles. A common method that fund managers use to gauge the performance of their funds is comparison with standard indexes. Market indexes, such as the Standard & Poor's 500 stock index, serve as benchmarks to judge the effectiveness of the manager's strategy.

Background and Development

Pensions for military personnel have existed for centuries. The pilgrims of Plymouth Colony enacted a crude pension system for their soldiers in 1636. The first pension law in the United States, however, was implemented in 1789 and promised benefits to those who enlisted in the colonial army.

The concept of providing pensions for retired employees did not begin until the nineteenth century in Europe and did not significantly spread to the United States until the early twentieth century. One of the first pension plans set up a fund for teachers in New Jersey in 1896, and similar plans soon followed. One of the first federal pension funds was the Federal Civil Service Retirement and Disability Fund, established in 1920. Public plans that followed set up funds to benefit retiring policemen, firemen, and congressmen.

Just as it helped to establish public pension plans, legislation was a great impetus for the advancement of the private pension industry. The Revenue Act of 1921 provided the first major private pension catalyst. This act laid the foundation for the basic tax rules governing private pensions in the 1990s. It allowed pension contributions to be deducted from the firm's taxable income, permitted tax-free accumulations within pension funds, and allowed deferral of personal income taxation on pensions until retirement.

The pension movement gained additional strength during World War II, when government wage and salary restrictions caused workers to seek more fringe benefits. A few years later, in 1949, pensions were classified by the court as acceptable tools for union bargaining. This development vastly increased the number of U.S. laborers in pension plans.

Growth of Pension Funds.
Despite their origins in the first half of the twentieth century, private and public pension funds did not realize widespread popularity until the 1950s. Prior to 1950, pension plans were largely viewed as a discretionary benefit offered by an employer as a token of appreciation for a worker's efforts. After that time, however, several factors began to reshape society's views toward pensions. Companies began to use pensions as a form of compensation because of the tax advantages associated with them. In addition, an aging population was seeking ways to ensure a stable future.

In 1974 the Employee Retirement Income Security Act allowed for substantially greater diversification of pension fund investments. The act stressed that investments need not be examined individually by regulators, but in the context of an entire portfolio, thus granting much greater leverage to and placing more emphasis on fund managers.

Between 1950 and the end of the century, the number of people covered by Social Security insurance alone increased from 23 million to more than 175 million. Fund assets for all pension plan types during this period swelled from about $31 billion to $8.01 trillion in 1998. During the 1980s alone, pension-fund assets grew more than 300 percent. The bull market of the mid- and late 1990s also boosted pension-fund assets.

Aside from changing public attitudes and legislation, an aging population is a root cause of the growth in pension fund assets. The percentage of the U.S. population over 65 years of age more than doubled between 1920 and 1980 to about 12 percent. The fantastic growth in the number and percentage of aged persons in the United States reflects birthrate declines, an increase in life expectancies, and the curtailment of immigration.

The 1980s.
Pension fund management during the 1980s was affected by several trends and developments that continued to shape the industry in the early 1990s. Two of the most significant trends included an increase in popularity of defined contribution plans in comparison to traditionally popular defined benefit plans, and stricter regulations regarding fund reserves.

The increase in the popularity of defined contribution plans in the private pension market resulted in part from the economic boom of the 1980s, as well as the more appropriate benefit structure of contribution plans in the new business environment. Defined contribution plans also benefited from a comparatively liberal set of regulations and tax laws. As a result, they provided a higher rate of return than defined benefit plans.

Besides increased investment returns, one reason for the popularity of defined contribution plans during the 1980s was that employees had a better feel for exactly what they were getting back from their investment. Workers also felt as if they had more investment control than defined benefit plans offered. Contribution plans were also viewed as more mobile, which was an important consideration for people who expected to change employers.

Many employers also preferred defined contribution plans because they were easier and less expensive for the company to maintain than traditional defined benefit plans. In addition, employers were able to shift more administrative costs to their employees.

Rapid growth in defined contribution plans began to wane slightly in the late 1980s as the economy slowed and new regulations diminished their benefits. Nevertheless, total investment in contribution plans by fund sponsors exceeded assets in defined benefit plans in the mid-1990s.

A second development that fund managers encountered in the 1980s was stricter federal requirements for reserving funds. Regulators began to question whether many private pension funds had adequate reserves to meet their future obligations. Amplifying their concerns were company failures in the late 1980s, which placed stress upon PBGC reserves. Furthermore, the stock market crash of 1987 reduced the value of many pension funds. The failures of Pan Am and Eastern Airlines alone cost the PBGC $1.6 billion. As a result, several regulations and initiatives were enacted that affected pension funds.

Three efforts in particular served to change the industry. The Omnibus Reconciliation Act (OBRA) of 1987 and Financial Accounting Standard (FAS) No. 87 both served to enforce adequate reserves in pension funds. In addition, the Tax Reform Act of 1986 effected changes reducing some of the employer and employee gains derived from both defined contribution and defined benefit plans.

Besides increasing their use of defined contribution plans and having to adapt to new regulations, fund managers also became actively involved in the management of the companies in which they invested. As some pension fund managers became concerned about what they felt were unsound business practices, they put pressure to improve operations on the companies in which they owned significant shares. Typical suggestions for improvements related to better boardroom practices. The California Public Employees' Retirement System (CALPERS), for example, began targeting 12 companies each year for improvements. In 1992, after CALPERS published the names of some companies that refused to meet with its representatives regarding changes the companies agreed to meet with fund managers. Other trends in the pension fund industry that accelerated in the 1980s included activity by fund managers in alternative investments and foreign assets.

In contrast to solid investment returns realized by fund managers during most of the 1980s, investment performance diminished in the late 1980s and early 1990s as the U.S. economy stagnated. Regulators became concerned that many pension plans were underfunded and might be unable to meet their future obligations. Therefore, legislation was enacted to help ensure the financial stability of private funds. Meanwhile, the future success of the federal social insurance pension fund remained doubtful.

The 1990s.
Going into the 1990s, pension fund sponsors and managers struggled to overcome the stagnating effects of low interest rates combined with lackluster returns on their investment portfolios. They also strove to improve the ratio of assets to liabilities in their funds in the face of a sluggish world economy. Many of them also grappled with increased fund liabilities brought about by premature employee layoffs from downsizing. General Dynamics Corp., for instance, reduced its workforce almost 67 percent in two years, requiring it to raise at least $1 billion in payments to companies that purchased some of its divisions. As another example, Texas Utilities Co.'s fund assets plummeted 50 percent, to $785 million, as its workforce shrank 30 percent and assets were consumed to meet unexpected benefit obligations.

The pension fund industry in the mid-1990s also prepared to manage a rapid influx of capital during the coming decade, a result of aging baby-boomers saving for their retirement. Hotly contested political debates over the future of Social Security also portended strong growth in private pension funds. With the help of the bull market in stocks, pension funds enjoyed strong asset growth in the mid-1990s. Assets allocated to foreign investment, real estate equity investments, and alternative investments showed significant growth, while popular alternative investments included private equity and buyouts, venture capital investments, private debt, and non-investment grade bonds. In foreign investments, allocations remained far larger in foreign equities than in foreign bonds.

New legislation promised to change the face of the pension fund industry as the Democratic Clinton administration took office in 1993. By the end of his first term, Clinton had proposed or signed into law more legislation and pushed for more regulatory changes than any administration since the passage of the Employee Retirement Income Security Act of 1974 (ERISA).

Two major pieces of legislation affecting pension plans were the Retirement Protection Act of 1994 (RPA) and the Small Business Job Protection Act of 1996 (SBJPA). The RPA resulted in several new regulations for pension plans covering areas such as minimum funding requirements, liquidity, payouts, and reporting requirements. The SBJPA contained provisions revising the Internal Revenue Code and ERISA that were billed as "pension simplification." These provisions included new tax rules covering individuals, retirement plan distribution rules, and a new tax-favored retirement plan for small businesses called the Savings Incentive Match Plan for Employees (SIMPLE). It was expected that the SIMPLE plan would replace the current SAR/SEP plan used by small businesses by the end of 1997.

Among the major policy changes embedded in these pieces of legislation was the reduction of the salary cap used for calculating pension benefits. By reducing the salary limitation from $225,000 to $150,000, the new law had the effect of reducing the maximum pension benefits for high-paid executives. Another major change concerning Individual Retirement Accounts (IRAs) allowed non-working spouses to receive favorable tax treatment for contributions of up to $2,000.

Pension plan sponsors may choose to manage their assets internally or use outside money management services. In 1995, internally managed equity assets surpassed internally managed fixed income investments for defined benefit plans. In 1996, that was reversed, with internally managed bond portfolios surpassing those of stocks. Among the top 200 pension funds, $1 trillion in assets invested in defined benefit plans were managed internally in 1998 while the figure for defined contribution plans was much lower at only $103 billion.

Several factors were at play affecting the choice of internal versus external management. It was generally recognized that it was cheaper to purchase investment services externally than internally. Some funds experienced trouble retaining good money managers, who could find higher salaries at money management firms. Some funds grew so large that they began to feel it would be more effective to have their funds managed externally. One factor working in favor of internal management was the trend among larger plan sponsors to index their core equity assets rather than have them actively managed.

Private funds, which had grown to account for 71.5 percent of all pension fund assets in 1998, accounted for only 66 percent of assets by the end of 2000. The growth of private funds had been attributable to a number of factors, including uncertainty regarding the future of the public pension system, a relaxed regulatory environment in the financial sector, and the strong economy. However, the economic downturn in the early 2000s caused some consumers to shy away from the private fund market.

An estimated 18 percent of private pensions were underfunded in 1999, down from 55 percent in 1980. Moreover, the majority of those pension funds considered fundamentally sound were particularly well insulated to weather potential minor stock market plunges. Analysts surmised that it would require about a 30 percent decline in the stock market before surplus assets would be depleted among the healthy funds, a cushion that was markedly thicker among the largest funds. As a result, fund managers were likely to see their contributions and expenses decline well into the 2000s. Contributions by the top 200 funds totaled $38.1 billion in 1999, down from $44.1 billion in 1997. Meanwhile, assets among the top 200 outpaced liabilities by a margin of 20 percent, a gap not enjoyed since the end of the last economic-boom cycle in 1989. Assets jumped 13.4 percent in 1999, while liabilities dropped 13 percent.

Although thousands of pension plans served both the public and private sectors in 1998, the control of assets steadily gravitated toward the largest funds. The top 200 funds maintained assets of $3.7 trillion that year, amounting to 38 percent of all pension-fund assets. The top 100, moreover, controlled $3.1 trillion, up from a mere $270 billion in 1979.

The most pronounced growth among the top 200 funds was due in large part to mergers and acquisitions. High-profile pension-fund mergers occurred between SBC Communications and Ameritech Corporation, resulting in the fifth-largest corporate fund, as well as between BP America and Amoco Corp. The consolidation in the asset management industry mirrored the increasing concentration of the financial services sector as a whole, resulting in a tightening supply of institutional investors with burgeoning buying clout. It also intensified the growing international flavor of the pension-fund industry as indicated by the 54 mergers or acquisitions in 1999 that were between domestic funds, while 51 involved international deals.

Pension funds with a social conscience began to establish themselves in the late 1990s. After laws were clarified allowing trustees to offer pension funds the option of employing socially responsible investment (SRI) schemes in their portfolios, the use of SRI criteria jumped 13 percent in 1999, following a 9 percent increase the year before. Overall, approximately $2.1 trillion in funds run in accordance with SRI principles, which take into account social issues ranging from human rights to environmental friendliness in screening for sound investment options. In the late 1990s, the performance of such portfolios outpaced the industry average, which, along with heightened popular concern over social issues, was expected to result in even greater SRI application in coming years.

Foreign Investment.
Although U.S. pension managers invested internationally since the 1970s, it was not until the 1980s that investment in overseas assets accelerated. In 1980, the largest U.S. pension funds were devoted almost exclusively to U.S. investment. By the late 1990s, more than 69 percent of U.S. companies offered international equity, compared with 39 percent in 1994. In fact, the dollar value of foreign assets held by U.S. pension funds skyrocketed during the 1990s to more than $300 billion by 1994 and nearly $960 billion by 1999. Moreover, six of the ten most expensive merger or acquisition deals in 1999 were between U.S. and foreign funds.

Fund managers sought foreign investment assets in the 1990s because they provided higher yields. For instance, beginning in 1971 foreign bond returns outperformed U.S. bonds by a margin of 5 percent. Foreign investments also increase investment-portfolio diversity, which reduces the risk of losses caused by regional economic downturns.

Part of the reason for the influx of investment into foreign countries was a reduction in the barriers to entry for fund managers. The development of the European Union and its common currency along with a pan-European investment market in the late 1990s opened up the market to increased foreign investment. Multilateral investment deals negotiated at major world financial institutions accelerated this process.

Despite reduced investment barriers, many restrictions continued to exist in most countries that limited pension fund activity. For instance, local and regional restrictions placed limits on the amount foreigners can invest in various assets classes. Districts in some nations, such as Spain and Portugal, require that funds invested in their precinct be managed by local organizations.

Public pension systems in all industrialized nations were under increasing strain throughout the 1990s, which was expected to lead to greater emphasis on private pension funds. The European Community was expected to experience the most pronounced privatization boom due to the historically high reliance on state provision in those countries.

While increased returns and diversification lured U.S. pension managers to industrialized Asian and European countries in particular, the emerging markets in Latin America, the Pacific Rim, and China were beginning to offer some of the greatest opportunities for investors. While these less-developed markets remained riskier, they offered the potential for comparatively high returns, as well as diversification for many pension fund portfolios.

Early 2000s.
Throughout the 1990s the leading public funds increased their exposure to equities. A total of 61 percent of the assets in these funds were invested in public securities in 1999, up from 22 percent in 1979. Moreover, fund managers leaned toward more proficient employment of alternative investment exposure by way of real estate and venture capital. Finally, with the fantastically high ratio of assets to liabilities, a strategy that gained favor with fund managers was the splitting of portfolios into two distinct parts that focused on separate goals. While one-half can focus on covering liabilities, the other can chase immediate returns. Still, amid the raging economy and bull market, many fund managers were reluctant to forego potentially lucrative short-term gains in favor of shoring up their risk-management schemes, out of fear of losing investors. As a result, the assets of the 200 largest U.S. pension funds eclipsed a record $4 trillion in 2000. When the stock market crashed, however, this exposure to the stock market caused pensions fund assets to tumble. In 2001, the assets of the 200 largest U.S. pension funds slid 14.4 percent to $3.5 trillion. Assets of the 1,000 top funds fell 12.7 percent, from more than $5 trillion in 2000 to $4.8 trillion in 2001.

Various investment strategies were available to pension plan sponsors. Among the top 200 funds, more than 100 funds utilized such strategies as equity index funds, foreign equities, and real estate in their investment strategies. Defined benefit plans tended to invest more heavily in U.S. equities, which accounted for 43.2 percent of the top 200 defined benefit plans' allocation in 2001. Defined contribution plans focused more on current performance levels. Thus, the heightened popularity of defined contribution plans in the mid- and late 1990s was in large measure related to the booming financial markets. In 2000, the top 200 defined benefit plans allocated 64 percent of their assets to equities, but this figure dropped to 61 percent in 2001.

The stock market's decline prompted some pension funds to seek alternative investments. For example, the Retirement System of Alabama offered $240 million for a 37.5 percent stake in bankrupt US Airways Group Inc. in September of 2002. According to the Alabama pension fund's CEO David Bronner, the reason for such an offer is simple: "You can't get any decent returns from stocks or bonds, so you can either sit on your cash or find something else."

Another major pension issue potentially affecting all fund managers in the 2000s was the gradual demise of the Social Security pension system. The long-term viability of this system was in serious doubt, as pension analysts predicted that the plan was underfunded to such a degree that it would be insolvent by 2036, leaving private pension funds and individual savings plans to make up the shortfall. Furthermore, the fund will likely require federal reimbursements by the year 2016. Through the early 2000s, debates raged on Capitol Hill regarding the possible privatization of Social Security.

During the mid-2000s the pension industry continued a trend away from defined benefit plans to defined contribution plans, primarily in the form of 401(k) contributions. By the mid-2000s less than 20 percent of Americans participated in only a defined benefit plan, down from 40 percent in 1992. "The death of the corporate pension was to a large degree inevitable," Justin Fox noted in Fortune in June 2005. "It's hard to find a company founded since the 1970s that even has a defined-benefit pension plan, and older corporations that do have been torn between the interests of retirees and the current needs of shareholders, lenders, managers, and employees."

Several high-profile, high-dollar pension plan defaults during the first half of the 2000s emphasized the troubled state of the corporate pension plan. In 2002 Bethlehem Steel defaulted on its pension plan, handing over $4.3 billion in obligations to PBGC. In 2005 a federal bankruptcy court permitted United Air Lines to default on its pension program, which was underfunded by $9.8 billion, the largest pension default on record. The PBGC planned take-over of United pension plan would only cover about $6.6 billion as the PBGC set limits on retirement benefit payouts. However, in June 2005 the U.S. House of Representatives approved an amendment to an appropriations bill that moved to prohibit United from defaulting its pension plan to the PBGC. It was unclear whether the bill would pass or whether Congress had the power to act against the bankruptcy ruling to permit the transfer.

United's bankruptcy and pension default indicated that company retirement benefits were not ultimately secure and added additional stress to the already overburdened PBGC. In 2004 the PBGC had $62.3 billion in long-term obligations but held just $39 billion in assets. In addition, corporate pension underfunding grew significantly during the first half of the 2000. According to the PBGC, underfunding at large companies jumped 27 percent in 2004 to $354 billion, with a total deficiency for all companies of $450 billion compared to less than $50 billion in 2000. Ford Motor Company, which announced the suspension of its contributions to employees' 401(k) plans, also experienced pension funding woes in the mid-2000s. In 2004 alone 44 Fortune 1000 companies froze or terminated defined benefit plan contributions.

While defined benefit plans continued to decline, defined contribution plans, especially 401(k) plans, continued to increase. Families with only defined contribution plans accounted for roughly 58 percent, up from less than 38 percent in 1992. About 22 percent of families held both defined benefit and defined contribution plans. IRA growth also continued, driven by lump sum deposits made by companies as employees changed jobs or retired.

Current Conditions

Following the subprime mortgage crisis and the financial services meltdown in the late 2000s in the United States, the pension fund industry was in dire straits. In 2010, Jacob Wolinsky in Newsmax stated that "Pension funds nationwide are dangerously underfunded and could require a several trillion dollar federal bailout." Others agreed. According to a survey by Pensions & Investments, assets of the top 1,000 largest retirement plans fell $330 billion, or 5.2 percent, to $6.0 trillion between September 2008 and September 2009. The same time period in the previous year saw a loss of 13.1 percent. Although Pensions & Investments reported that the decline seemed to be slowing in 2010, a survey by Chicago-based Loop Capital Markets LLC showed that 93 percent of the 145 state plans reviewed in 2008 and 2009 reported declines in funded ratios, according to an October 2010 article in The Bond Buyer. Although some states were taking measures to try to correct the problem, such as moving away from a defined benefit plan to a defined contribution or hybrid plan, this type of change "limits future costs but does little to bring down current liabilities," according to the article.

The pension fund industry also faced increasing regulation as the second decade of the twenty-first century began. This segment of the U.S. financial services industry--like all others--waited to experience the effects of the provisions in the sweeping reform act known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July 2010. Under provisions of the act, for example, the Securities and Exchange Commission proposed rules for establishing a whistleblower program that would include monetarily rewarding those who came forward with information on abuses in the system. The Investor Protector Fund held up to $3 million in reward money. Although the efforts by the federal government to provide protection to consumers in order to avoid such situations as the foreclosure fiasco of the late 2000s seemed noble, many questioned whether the increased government intervention would benefit the industry, the economy, or society in general.

Industry Leaders

One of the largest overall pension providers in the early 2010s was the Teachers Insurance and Annuity Association-College Retire Equities Fund (TIAA-CREF) with 3.7 million members and $426 billion in assets. Founded in 1918, TIAA-CREF once held nearly 100 percent of pension accounts for teachers and educators, but its market share had declined to 70 percent by the mid-2000s.

Although the California Public Employees' Retirement System had long been the nation's largest retirement fund in terms of defined contribution assets, in 2009 it was overtaken by the Federal Retirement Thrift Investment Board, which gained 11.3 percent to reach $234.4 billion. Assets of the California system declined 7.4 percent to $198.8 billion, according to Pensions & Investments. Rounding out the top five were the California State Teachers' Retirement System, with $130.5 billion in assets; the New York State Common Retirement Fund, with $125.7 billion; and the Florida State Board of Administration, with $114.7 billion.

The assets of the 200 largest U.S. retirement plans totaled $4.54 trillion at fiscal year end September 30, 2009, down almost 4 percent from the previous year.


The pension fund industry workforce is largely comprised of professionals with the financial or legal knowledge necessary to properly oversee and invest fund assets. Seven employment functions within the industry include administrative staff, attorneys, actuaries, investment advisers and money managers, accountants and auditors, custodians or trustees, and performance monitors. Each of these functions also requires support staff. Administrative employees are responsible for keeping track of existing fund assets, current and future obligations, and future contributions. Positions in this field require financial and accounting skills.

Attorneys help fund managers follow federal and state regulations governing fund management and administration. Actuaries are responsible for predicting future pension fund obligations and contributions and also determine investment return requirements. Actuaries rely on advanced mathematical and statistical techniques to accomplish these tasks and often must train for several years to become fully designated in their profession.

Money managers provide portfolio investment services for fund sponsors and managers. They buy and sell securities and other assets in accordance with prevailing investment strategies and market conditions. Various companies may provide these services, including bank trust departments, money management firms, specialty management firms, and index fund managers. Index fund managers administer funds in which pension fund sponsors and managers can place assets. Index funds, which became popular during the 1980s, derive returns from a broad market portfolio that serves to minimize transaction costs and management fees and to reduce market risks. Pension funds typically pay mangers a percentage of the assets managed. Annual earnings in management averaged over $110,000 in the mid-2000s, with chief executive officers earning an average $164,000 annually. Jobs in money management typically require at least business or economics degree, and often an MBA or other advanced degree.

Accountants and auditors, usually Certified Public Accountants, assist in the financial reporting process. They also provide technical assistance with data processing and financial analysis.

Employment opportunities in most areas of the pension fund industry are expected to grow much faster than average, as assets placed in funds proliferated during the 2000s. The demand for specialty consultants who can provide detailed investment advice about alternative investment assets is expected to increase in particular. The demand for services related to defined contribution plans are also anticipated to grow faster than average.

America and the World

The pension fund industry in the United States is similar to the British pension system on which it was modeled. While most other industrialized countries have pension systems similar to the United States and Britain, some countries rely more heavily on government-sponsored pension plans. According to the Organization of Economic Cooperation and Development, the United Kingdom followed a distant second to the United States in pension assets with a total of $1.18 trillion in 2003. Other countries that invested heavily based on percentage of gross domestic product included Norway, the Netherlands, Japan, South Korea, and Canada.

Besides the fact that the United States has more pension fund assets than any other country in the world, American pension funds also differ from funds in many countries in the way that their assets are allocated. Great Britain, which has the second largest pension fund industry, places much more of its assets in domestic and international equities than in bonds. Pension plan managers in the Netherlands, on the other hand, are far more likely to place more of their assets in bonds and international assets than are U.S. managers.

Research and Technology

Pension funds were scrambling to catch up to banks and stock brokerages in establishing an online presence. The extent of online financial services grew exponentially in the early 2000s, and consumers performed a greater share of their investing via the World Wide Web. As a result, pension funds rapidly entered the online world to snare potential customers before they developed relationships with other, more Internet-savvy firms.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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Louis J. Sarno of Canton, former administrator of the pension, health, and welfare funds of Bricklayers and Masons Local 3 in Boston, died of cancer Wednesday in his home. He was 67. Mr. Sarno was born in Boston...
Mosser Construction, Inc. announces promotions
Toledo Business Journal; February 1, 2001; 700+ words
...Bricklayers and Allied Craftsmen, Local 46, and over 25 years as chairman of the Board of Trustees for the Pension, Health and Welfare Funds for the Ohio Bricklayer's State Fund. Miller was on the original advisory board for Mosser Construction...
Union sues Zema Foods to get liquidation funds.(Business)
Daily Herald (Arlington Heights, IL); July 6, 2000; 448 words
...said Wednesday. The union's attorney, Glenn R. Heyman, said Wednesday that union members and their pension, health and welfare funds are owed a little more than $500,000. The union filed a lawsuit June 23 to force an involuntary bankruptcy...
Helping Disadvantaged Businesses.
The Practical Accountant; October 1, 1999; 700+ words
...Taylor, Cleveland Acquired: Rothchild, Meckler & Co., Beachwood, Ohio Size: Staff of 16 Niches: Pension, health and welfare funds; tax and financial planning; small-business and real estate consulting. Notes: Through merger, RM...
The Boston Globe (Boston, MA); September 22, 1988; 593 words
...can afford to live in the city. Bozzotto said the housing plan called for the union to support it with pension, health and welfare funds, and for the hotels to contribute 8 to 10 cents for each employee hour worked. "Our members can't live...
DEPARTMENT OF LABOR Pension and Welfare Benefits Administration Grant of Individual Exemptions; Connecticut Plumbers and Pipefitters Pension Fund (the Pension Fund), Connecticut Pipe Trades Local No. 777 Annuity Fund (the Annuity Fund), Connecticut Pipe Trades Health Fund (the Health Fund) (Collectively the Funds) et al.
FedNet Government News; April 26, 2002; 268 words
...Employee Retirement Income Security Act of 1974 (the Act) the Internal Revenue Code of 1986 (the Code). AGENCY: Pension and Welfare Benefits Administration, Labor. ACTION: Grant of individual exemptions. Copyright 2002 FedNet News Provided...

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