Amid the brutal stock market plunge of the last 2 1/2 years, there is at least one bright spot: the nation's pension and retirement plans.
Although pension plans of major corporations and government agencies--along with 401(k) retirement plans of individual employees--have taken losses in the market meltdown, they in aggregate have not fallen anywhere near as much as the stock market as a whole, largely because of the plans' conservative investment approaches.
As the Standard & Poor's 500 stock index and the Dow Jones industrial average declined more than 20% in the last year, corporate and state pension plans and individual retirement plans lost only 5% to 10%--largely because they have diversified investments among bonds, stocks and real estate, according to surveys of thousands of pension funds by consulting firms and research institutes.
That means the retirement savings of millions of workers have not been as hard hit as the market plunge would indicate. That could help explain why consumer spending and the economy have held up much better than the market.
"There is no retirement crisis because of the stock market decline," said Dallas Salisbury, president of the Employee Benefit Research Institute, a Washington-based organization financed by employers, unions and government agencies that monitors thousands of pension funds.
To be sure, low overall savings rates and other problems pose a long-term threat to Americans' retirement incomes.
Nor are Salisbury and other experts minimizing the losses of employees who had 401(k) accounts and other retirement funds invested in the stocks of Enron Corp., WorldCom Inc. and Global Crossing Ltd.--all now in bankruptcy proceedings--and other troubled companies. Some of those workers have lost most or all of their retirement savings.
But for the overall work force, the market's plunge has not caused serious damage to prospects for retirement income, experts said. For most workers, problems with their ability to retire stem less from the stock market plunge than from the fact that they have not saved enough, experts said.
Lesser Effect of Markets
Stock markets simply don't have the effect on consumer attitudes that many believe they do, said Robert J. Shiller, Yale University economics professor and coauthor of a paper on so-called wealth effects.
Housing prices--which have continued to rise while the stock market has plunged--have a strong effect on consumer feelings of wealth, Shiller and his colleagues found, but stock prices do not.
