MarketWatch: Pensions suffering in financial crisis

[marmar]

Pensions suffering in financial crisis
CBO analysis finds at least $1 trillion in losses as asset values fell
By Ruth Mantell, MarketWatch


WASHINGTON (MarketWatch) -- Pension assets declined by at least $1 trillion and may be down as much as $2 trillion over the past year and a half as the credit crunch tightened its grip on financial markets and the U.S. economy, the Congressional Budget Office reported Tuesday.

"The turmoil in financial markets has affected many aspects of the economy, including pensions," according to Peter Orszag, director of the CBO. "The most direct effect on pensions is through the prices of financial assets such as corporate equities and bonds. Because the majority of pension assets are held in equities, drops in stock prices have had a significant adverse effect on pension plans."

Orszag, who testified before a House panel Tuesday on retirement assets and also posted comments on the issue on the CBO Web site, estimated that the decline in the value of financial assets cost pension funds about $1 trillion -- almost 10% of their assets -- from just the second quarter of 2007 to the second quarter of 2008.

The CBO looked at both traditional defined-benefit pensions and defined-contribution plans such as 401(k)s. The value of the assets held by defined-benefit plans has declined by about 15% over the past year, according to CBO's estimate. The value of assets in defined-contribution plans may have declined by "slightly more" than assets in defined-benefit plans because of the heavy emphasis on equities, according to CBO.

Orszag added that the decline in financial markets may lead some people to work longer. He noted that "severe stresses in financial markets almost inevitably cause wrenching adjustments by workers and employers," but that the risks can be lessened.

"For example, although workers enrolled in defined-contribution plans may not be able to avoid bearing the risks associated with broad price changes in financial markets, they can avoid unnecessary risks associated with a lack of diversification," Orszag said.

"Such unnecessary risks can arise, for example, by overweighting portfolios with individual stocks rather than diversified index funds."


http://www.marketwatch.com/news/story/pension-funds-take-1-trillion/story.aspx?guid=%7BB499B140%2DA2E6%2D4AC9%2DA292%2D624FA7FBFB19%7D&dist=hplatest

[Turbineguy]

1. It's only "workers" money

For a minute there I was worried.