Study Finds Large Corporate DB Plans Financially Healthy

December 18, 2007 ( - The 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).

In a press release, CIEBA said three years of consistent contributions and substantial investment gains led to an average funded status for plans participating in the 2006 survey of 103%, based on accumulated benefit obligations (ABO).

Assets in both DB and DC plans increased during 2006 by 9% and 11%, respectively, the release said. The increases were generally due to strong investment returns. However 71% of the DB plans sponsors in the survey contributed over $27 billion to their plans.

For DC plans, the combined contribution total per employee was $8,150, with employers contributing 29%.

CIEBA found defined benefit plans continue to provide the bulk of retirement benefits to plan participants. DB plans had 68% more assets and paid out 53% more in benefits 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, in the release.

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% in U.S. equity, 21% in international equity, 29% in fixed income/cash, and 14% 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% in diversified (U.S. and international) equity portfolios, 25% in employer stock, 23% in fixed income, 9% in balanced and lifecycle funds, and 4% 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.
  • 86% of DB assets were actively managed compared to 52% of DC assets.
  • Almost all survey respondents (98%) offer a lifecycle or balanced fund investment option in their DC plan, and auto enrollment was a feature in 37% of plans in the survey.
  • Almost half (46%) of respondents offer individual financial planning assistance and/or interactive advisory software programs.

The survey covered 112 corporate plan sponsors responsible for the management of $966 billion in DB plan assets and $573 billion in DC assets.