Summary

In response to a congressional request, GAO reviewed the effects of the October 1987 stock market decline on selected pension plans with large amounts of assets, specifically the: (1) relationship between the proportion of funds invested in stock and the changes in the plans' asset values; and (2) effect on defined-benefit and defined-contribution plans.

GAO found that: (1) the combined asset value of the 174 plans reviewed decreased substantially, from about $300 billion to about $34.5 billion, during the stock market decline; (2) most of the plans experienced increases in asset values for the year at a combined gain of about 6 percent; (3) enormous increases in plan assets and early 1987 gains of $51.5 billion more than offset the fourth quarter decreases; (4) most plans' diversified investments partially recovered during the final months of 1987; (5) changes in plan asset values during 1987 were related to the proportion of assets in stock and the rise and fall of the stock market; (6) significant exceptions to the changes suggested that factors such as asset diversification, the quality of individual investments, and transaction timing also affected plan asset increases and decreases; (7) although most defined-benefit and defined-contribution plans fared about the same, a larger percentage of defined-contribution plans had asset decreases and more wide-ranging changes in their assets; and (8) although the poorest performing defined-contribution plans lost more than the poorest-performing defined-benefit plans, the best-performing contribution plans gained more than the best-performing defined-benefit plans.