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Regional Report - USA International Pension Conference FIAP and the Chilean Pension Funds Administrators Association San

Regional Report - USA International Pension Conference FIAP and the Chilean Pension Funds Administrators Association Santiago de Chile March 15, 2001. Regional Report - USA. John C. Scott American Benefits Council jscott@abcstaff.org (202) 289-6700 Fax: (202) 289-4582

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Regional Report - USA International Pension Conference FIAP and the Chilean Pension Funds Administrators Association San

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  1. Regional Report - USAInternational Pension ConferenceFIAP andthe Chilean Pension Funds Administrators AssociationSantiago de ChileMarch 15, 2001

  2. Regional Report - USA • John C. Scott • American Benefits Council • jscott@abcstaff.org • (202) 289-6700 • Fax: (202) 289-4582 • The American Benefits Council • A note on sources and data

  3. Main Characteristics of the U.S. Pension System • Social Security - The U.S. Government “PAYGO” Pension Fund • Private Savings - IRAs, Investments • Employer-Sponsored Plans • Public Sector Plans - Federal, State, Local Government • Private Sector Plans

  4. Characteristics of the U.S. Pension System: Private Sector Plans • Defined Benefit • Defined Contribution • Profit Sharing • 401(k) • Investment Options - In 87% of plans, participants could choose their investments, up from 53% in 1989. • More choices and more ability to make choices

  5. Characteristics of US Pensions • Pension Law and Regulations • Employee Retirement Income Security Act (ERISA) • Consists of Tax and Labor Laws • Sets standards for coverage, eligibility, participation, vesting of benefits, and funding • Provides for minimum funding rules and maximum contribution and benefit limitations

  6. Characteristics of US Pensions • ERISA’s Fiduciary Rules: • Broad Definition of “Fiduciary” • Fiduciary Duty: Must Act in Exclusive Interest of Participants and Beneficiaries • Fiduciary Standards: “Prudent Man” Standard • “Prohibited Transaction” Rules: Conflicts of Interest

  7. Pension Statistics: Sources of Assets for the U.S. Retirement Market, 1998 (Total $ and Percentage of Assets)(Total: $9.47 trillion)

  8. Pension Fund Statistics:1999 Estimate of Participants(1,000s)

  9. 1999 Estimate of Participants • Type of Worker: 64% of full-time employees are in a plan v. 42% of part-time workers • Type of Employer: • 58% of private employees are covered by a plan v. 90% of public employees • 37% of part-time, private employees v. 78% of part-time public employees

  10. Pension Statistics: Portfolio Composition of Private Plans

  11. Pension Statistics: Portfolio Composition of State and Local Government Plans

  12. Pension Fund Statistics:Defined Benefit vs.. Defined Contribution Assets, 1990-2005

  13. Pension Fund Statistics • Plan Growth Since 1987: • Total Plans Have Declined by 5% • DB Plans Have Declined by 61% • DC Plans Have Increased by 11% • Causes: • Small Companies Terminating DB Plans • Transfer of Costs to Employees • Large Companies Sponsoring Both Types of Plans

  14. Pension Fund Statistics • 401(k) Plans: • Number of Plans Increased by Over 400% since 1987 • Assets Increased from $215 Billion in 1987 to over $ 1 Trillion in 1996. • Contributions: Over $300 Billion in 2000 • Contributions: $2,352/Participant in 1985 v. $3,370/Participant in 1996

  15. Future Reforms • Fiduciary Law Reform • Bankruptcy Protection for Pension Funds • Increased Funding and Contribution Limits • Incentives for Savings by Low-Income Americans

  16. Pension System News • Retirement Planning and Preparation • “Workers not focused on retirement savings needs” • Worker ignorance - 53% have not made retirement calculations • Inadequate Savings - Almost 50% do not have enough pension funds for adequate retirement • Importance of Education

  17. Pension System News • “State’s Pension Funds Lose $6 Billion” • “Subtle Changes Reported in DC Asset Allocation” • Small changes in investment allocations in 2000 • Effects of education • “GM Drivers Will Get Stock in Traffic” • Online Trading in Automobiles • Effect on Pension Plans: Long-term View?

  18. Pension System News • Pension Fund Fees • “401(k) Fees Can Pilfer Profits” • “Vanguard Shows All” • Federal Government Guidance on Fees • Pressure on Pension Fund Managers

  19. Pension System News • Investment Advice and Choice • Online Advice • “Morningstar” Article • “Online Advice Becomes Key Benefit to 401(k) Sponsors” • Of the 24% of plan sponsors that provide advice, 51% do so over the Internet. By 2005, 92% of advice will be provided over the Internet. • “Employees Want More Investment Paths”

  20. Pension System News • Worker Activism • “Your Portfolio: Is your boss raiding the 401(k) till?” • “New York Life Fights Pension Asset Suit” • Used Retail Funds for Own Plan • Class-Action Lawsuit

  21. Regional Report - USAInternational Pension ConferenceFIAP andthe Chilean Pension Funds Administrators AssociationSantiago de ChileMarch 15, 2001

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