Pension Contributions Up in 2002

January 7, 2004 ( - Defined benefit plan contributions increased three fold in 2002 to $21 billion from an average of $5.9 billion over the previous four years.

With 2002’s shot in the arm, plan sponsors were contributing 3.7% of year-end assets to defined benefit plans that were ravaged by stock market declines for the year.   Defined benefit plans were not the only retirement plans with an extra infusion of cash in 2002.    For the eighth consecutive year, employer and employee contributions per active employee were up, totaling $6,660 in 2002, according to a survey conducted by Committee on Investment of Employee Benefit Assets (CIEBA), whose membership of pension funds manage nearly $1 trillion.  

Contributions made up 6.8% of year-end assets in defined contribution plans and payments to both defined benefit and defined contribution plans represented 9% of year-end assets.

The numbers for both types of retirement plans are even more impressive considering that in retirement plan contributions took place as year-end assets declined 14% from their 2002 starting marks.   This is not surprising given that 56% of the assets in both types of retirement plans were invested in equities.

The damage could have been much worse, as both defined benefit and defined contribution plan equity allocations decreased from 2001, offset largely by increased fixed income allocations. For pension plans, this change in allocation appears to be largely a result of depressed equity prices and higher bond prices, whereas for defined contribution plans, the percentage of assets in diversified equity portfolios remained relatively stable, while the percentage dedicated to company stock dropped from 36% to 30%.

The survey assessed 104 corporate pension plans that cover 9.5 million defined benefit plan participants and 5.5 million defined contribution plan participants.   The survey found 94% of all CIEBA member companies offer both types of plans. Eighty-six percent of all eligible workers were participants in a defined contribution plan, nearly a 20% increase since 1993.

But it was the defined benefit plan that represents the primary retirement plan offered by CIEBA members.   Overall, member pension plans had 58% more assets than their defined contribution brethren, covered 74% more participants, and paid out 64% more in benefits.