Rather than fund retirement, individuals are rebuilding savings accounts and paying off debt
Los Angeles, CA (PRWEB) May 10, 2012
On June 2, 2009, General Motors filed for bankruptcy in part due to their struggle to finance healthcare costs and retirement obligations. The company's collapse illustrates the risks associated with defined benefit (DB) programs such as pension plans, which dictate the benefits a sponsor must provide rather than the contributions employees must give. Firms have moved away from DB programs toward defined contribution (DC) plans over the past 20 years to lower the costs associated with retirement obligations. “The financial meltdown decimated the Retirement and Pension Plans industry in 2008,” says IBISWorld industry analyst Doug Kelly, when assets decreased 29.1% or $3.4 trillion. Industry assets have recovered somewhat since, but in 2012, asset levels are only expected to rise 1.5% to $8.9 trillion. Overall, industry assets are expected to decline an average of 5.3% annually over the five years to 2012, largely due to the massive drop during the recession. Over the five years to 2017, though, industry assets are forecast to increase at a marginal annualized rate. Even so, assets will remain well below their 2007 peak.
The dramatic decline in asset values during the recession will continue to reshape Retirement and Pension Plans industry trends for years. Companies responsible for meeting DB obligations will have to increase contributions to rebuild asset reserves. At the same time, Kelly says, “Individual contributions are projected to continue to decrease.” The spike in unemployment and slow economic recovery will reduce individual contributions as people look to rebuild personal savings and pay down existing debt. DC plans outnumber defined benefit plans; therefore, the decline in individual contributions will slow overall contribution levels.
It is also important to note that this report does not use a standard definition of revenue; instead, revenue is labeled as investment income or losses plus total contributions. The fees that an asset or custodial manager charges a retirement fund are not counted as revenue in this industry. Instead, the fees associated with these services are recorded in the Portfolio Management (IBISWorld report 52392) and Custody, Asset and Securities Services industries (52399). For more information, visit IBISWorld’s Retirement & Pension Plans report in the US industry page.
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IBISWorld industry Report Key Topics
The industry comprises legal entities (e.g. funds and plans) that provide retirement saving and income benefits exclusively for the sponsor's employees or members. Plans can be based on defined benefit or defined contribution. Revenue in this industry refers to total contributions plus net investment income or losses, while establishments refer to the number of funds. Fees from portfolio management, custodial operations or other third-party services are not included in this report.
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