Retirement Assets at Pre-Recession Peak, but Pension Programs Slow to Recover

Total retirement assets continue to climb, but the funding gap between defined contribution retirement plans and government defined benefit plans continues to widen, according a new Millionaire Corner retirement market report.

With the decline of traditional pension plans, the defined contribution plan has become the chief retirement savings vehicle for U.S. workers. Corporate and government assets in defined contribution plans increased past the previous 2007 peak for the second consecutive year.  Government defined benefit, or pension, plans, which have been slower to recover from the 2008 economic collapse, still lag behind pre-recession levels. These plans comprise 80 percent of total public-sector retirement assets.

Last year, the U.S. retirement market had total assets of $15.374 trillion. Assets of employer-sponsored retirement plans increased 1.9 percent from $10.2 trillion in 2010 to $10.4 trillion. Individual retirement accounts (IRAs) comprised another $5.016 trillion in retirement savings.

Of the $10.4 trillion in assets, the public sector, including corporate and union plans, accounted for $6.263 trillion, while the public sector, including government and 457 plans, comprised $3.265 trillion. Another $829.3 billion came from 403(b) plans for education, healthcare and non-profits.

Defined contribution plans, such as 401(k)s, which got a boost from ongoing employee contributions and market increases, grew to $3.738 trillion from $3.685 trillion. They are up 5.8 percent from 2007’s $3.533 trillion in assets. Public-sector defined contribution plans also showed modest gains, reaching $367 billion in 2011 compared to $354 billion in 2010. They have increased 4.0 percent from 2007’s $353 billion.

Assets in government defined benefit retirement plans, however, were up only slightly from $2.733 trillion in 2010 to $2.737 trillion in 201. They are still down 8.1 percent from 2007’s peak of $2.961 trillion in assets.

“Defined benefit plans, especially those in the public sector, are suffering from negative cash flow as they pay out benefits and see too little money flowing in from cash-strapped state and local governments,” notes George H. Walper Jr., president of Spectrem Group. “Even strong market returns on investments won’t be enough to relieve pressure on these plans any time soon as governments struggle to cover their underfunded pension liabilities.”