December 3, 2012 (PLANSPONSOR.com) – The 2008 stock market
crash wiped out trillions of dollars in defined contribution (DC)
When the stock market eventually bottomed out in the first
quarter of 2009, DC retirement accounts had lost about $2.7 trillion,
31% of their peak 2007 value, according to a brief from the Urban
Institute. Using data from the Federal Reserve’s 2012 Flow of Funds
Accounts and the Russell 3000 Index, the organization found that despite
the ongoing turbulence in the stock market, DC account balances have
increased since 2009, reaching $9.5 trillion at the end of the third
quarter of 2012—9% above their peak value in current dollars, but still
1% below their peak when adjusted for inflation.
The report said individual retirement accounts (IRAs)
account for the majority of DC account assets. With the stock market
crash, their share increased from 54% to 58% between the start of 2007
The impact of the stock market crash was even more
dramatic for defined benefit (DB) plans; the report said DB assets
declined 37% from their peak 2007 value. In contrast to DC accounts, DB
accounts have not fully recovered from the crash and the recession. In
the third quarter of 2012, their value was still only $2.3 trillion—15%
below their 2007 value in current dollars and 23% below their 2007 value
adjusted for inflation.
The Urban Institute speculates DB plan freezes since 2007 likely contributed to this shortfall.