Rather than fund retirement, individuals are rebuilding savings accounts and paying off debt
New York, NY (PRWEB) January 02, 2014
In 2009, Chrysler and General Motors filed for bankruptcy as they struggled to finance healthcare costs and retirement obligations amid a crash in car sales. Four years later, in July 2013, the city of Detroit filed for bankruptcy as a result of its crushing debt brought on in part by pension plans, making for the largest municipal bankruptcy filing in US history. These collapses illustrate the risks associated with defined benefit (DB) pension plans, which dictate the benefits a sponsor must provide, rather than the contributions employees must give. Over the past 20 years, companies and government offices have moved away from DB programs and toward defined contribution (DC) plans to lower the costs and risks associated with retirement obligations.
It is 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 financial meltdown devastated the Retirement and Pension Plans industry, when investment income and contributions severely declined.
According to IBISWorld Industry Analyst Leah Goddard, “Struggling companies and government offices reduced contributions to pension plans while the value of the plans' investment portfolio plummeted.” As a result, the industry suffered tremendous losses in revenue in 2008 and 2009. Because industry revenue was negative in 2008, its annualized growth rate is inflated to 274.7% over the past five years, including growth of 6.7% to $746.9 billion in 2013. However, these figures are not really representative of industry performance; rather, the change in assets is far more reflective.
The dramatic decline in assets during the recession reduced pension plans' funded ratios, which are assets divided by obligations. According to a survey by Boston College Center for Retirement Research, the average funded ratio of state and local pension plans hit a low of 73.0% in 2012, compared with over 80.0% in 2008. In the five years to 2018, funded ratios are projected to improve. This growth will be limited by the sale of assets to support the increasing number of beneficiaries reaching retirement. “Private and public entities responsible for meeting DB obligations will have to increase their annual required contributions (ARC) to put pension plans on a path toward full funding,” says Goddard.
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IBISWorld industry Report Key Topics
The Retirement & Pension Services industry is comprised of private and public pension funds that provide retirement saving and income benefits exclusively for the sponsor's employees or members. Plans are based on defined benefit and exclude 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 or other third-party services are not included in this report.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
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