Workforce.com

Study 3 of 4 U.S. Corporate Plans in Peril

May 24, 2007

Up to three-quarters of all U.S. corporate pension plans may be frozen or terminated within the next five years, according to a study released Wednesday, May 23, by consulting firm McKinsey & Co.

McKinsey said the return of private defined-benefit plans to healthy fund levels will, ironically, quickly boost the share of companies opting to freeze or terminate their plans from the current level of 25 percent.

In addition, McKinsey predicts looming regulatory and accounting changes will force plan sponsors to quickly adopt sharply different approaches to portfolio construction, leaving long-dominant money managers competing with insurers and investment banks to meet their needs.

At least $1 trillion of the $2.3 trillion now in private-sector pension plans will be invested in “entirely different products and solutions by 2012,” according to the study. Allocations to active domestic long-only equities are expected to plummet by 67 percent, with long-duration fixed income, hedge funds and private equity picking up the bulk of those losses.

Filed by Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.