Although recent market downturns are holding back asset growth, U.S. retirement plans have nearly doubled in value since 1997, research by Watson Wyatt Worldwide, a leading global consulting firm, has found.

The 2008 Global Pensions Asset Study found that assets in U.S. Pension funds, 401(k)s, individual retirement accounts and other retirement savings vehicles have increased from $7.9 trillion in 1997 to $15 trillion in 2007. As of the start of the year, these U.S. retirement assets were worth more than the gross domestic product ($14 trillion) based on a compound annual growth rate of 6.7 percent since 1997 compared with GDP growth of 4.8 percent during the same period.

"Retirement plans have built up strong reserves over the last 10 years, benefiting employers, employees and retirees," said Carl Hess, director of Watson Wyatt's investment consulting in North America. "Companies that have taken steps to optimize returns or reduce risk through their investment strategies, whether by hedging, diversification or better deals on fees, are better positioned than those still thinking about it. The current market will be challenging for many investors, and we can expect to see declines in asset values over the next year if the market turmoil continues."

Growth rates for retirement assets began slowing worldwide in 2007. In the 11 countries with the largest workplace retirement systems, the estimated growth rate for retirement assets was only 2 percent in 2007. This was a significant drop from the 10.5 percent growth rate for the five-year period ending in 2007 and from the 7.4 percent per annum growth of the last 10 years. U.S. short-term returns were better with retirement assets growing 8.3 percent in 2007 and 10.9 percent over five years. U.S. retirement assets make up an estimated 60 percent of assets in the 11 countries, although the U.S. share has been declining slowly.

In the United States, most retirement plan assets (59 percent) are invested in equities, while less than a quarter (23 percent) are in bonds and 17 percent in alternative assets, which include hedge funds, private equity, real estate, commodities and infrastructure. While the amount in equities has remained relatively stable over the last 10 years, the portion in alternatives has grown (from 9 percent in 1997) and the share in bonds has declined (from 33 percent in 1997).

"The move to alternatives is helping pension plan sponsors get more out of their assets while reducing overall risk," said Mark Ruloff, director of asset allocation at Watson Wyatt. "However, employers need to closely monitor these investments through appropriate governance strategies. This is crucial to ensuring that fees associated with these investments don't eat too deeply into returns."