Business: 20,000 PENSION FUNDS

The Strongest Source of New Capital

ONE of the newest and fastest-growing sources of new capital in the U.S. economy is the vast program of private pension funds. There are now 20,000 separate corporate plans covering in million workers, or 17% of the whole U.S. labor force. Their assets this year will reach $19 billion, and they are growing at the rate of $2 billion each year. By 1960, pension funds will have estimated assets of $35 billion and new contributions will be pouring in at the rate of $6 billion annually—30% of all savings available for new investment. For businessmen, the big problem is: How should this huge retirement kitty be invested so that it will bring maximum benefits both to workers and the U.S. economy?

Of the 20,000 pension programs, some 13,000, mostly the smaller plans, are insured by life-insurance companies and still invest extensively in such traditionally conservative securities as Government bonds. But the remaining 7,000 programs, which have 60% of all the money, are handled privately either by company officials or bank trustees, and they are using their funds to serve both workers and industry. While in 1946 the funds invested up to 50% of their money in Government bonds, today the Treasury Department reports that the percentage has fallen to 20%.

With the great postwar building boom, pension trustees are beginning to lend money on big office buildings, shopping centers and housing developments. Other companies are turning to well-paying corporate bonds to provide an increasing flow of new money for industrial expansion. While few companies invest in their own stocks (some even have specific rules against it), Sears, Roebuck has put 60% of its $600 million fund into its own shares, much of the other 40% into mortgages on its 696 U.S. stores.

But the biggest change of all is the flood of pension money going into the stock market. Up to 1950, few companies dared put more than 5% of their funds in common or preferred stocks, for fear that capital losses might imperil benefit payments. Today, many firms have as much as 50% of their pension fund in the market, and most of it in common stocks. Dr. Robert E. Wilson, chairman of the $2 billion Standard Oil Co. (Indiana), calls the pension funds "the strongest source of new capital going into the market." Where Stanolind once had 60% of its funds in Government bonds, it now has only 20%. On the switch from bonds to stock. Stanolind has sharply increased its workers' return, much of it in fat dividends from the oil industry itself. Other companies, such as American Airlines, General Aniline & Film Corp., are also going in more heavily for common stocks. Another large company, with a $100 million program, has 32% of its money invested in common stocks, another 13% in preferred stocks.

Since few pension investors are interested in quick, speculative gains, the effect of this buying has been to bull up as well as stabilize the stock market. Most funds invest on the "dollar averaging" principle, i.e., assign a specific amount of money each year to buying a certain stock. If the stock rises, the fund can buy fewer shares; if the stock falls, it can buy more, thus tending to stabilize the market.