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Regional Report - USA International Pension Conference FIAP and the Chilean Pension Funds Administrators Association Santiago de Chile March 15, 2001

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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

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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

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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

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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

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Characteristics of US Pensions ERISAs 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

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

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

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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

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Pension Statistics: Portfolio Composition of Private Plans

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Pension Statistics: Portfolio Composition of State and Local Government Plans

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

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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

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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

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

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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

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Pension System News States 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?

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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

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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

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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

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Regional Report - USA International Pension Conference FIAP and the Chilean Pension Funds Administrators Association Santiago de Chile March 15, 2001