Twice in three weeks, Pensions & Investments ran an editorial on the same red herring: that American unions oppose replacing Social Security with private market accounts, even though many union-affiliated pensions invest in the market.
First, on Feb. 22, you asked, "If unions consider equities too risky for retirement investments, why do they continue to allocate part of their pension funds to stocks?" The answer, which you could have gotten by asking any union official, is that it is only the guaranteed retirement income of Social Security that makes relatively risky investments acceptable for pension funds. In the absence of that guarantee, as economists like John Geanakoplos of Yale, Olivia Mitchell of the Wharton School, and Stephen Zeldes of the Columbia School of Business have shown, pensions would be forced to invest much more conservatively, eliminating much of the supposed higher return from privatization.
Then on March 8 you note that some public employees represented by AFSCME participate in funded pension systems run by state governments rather than Social Security. This, you argue, makes AFSCME's opposition to Social Security privatization "short-sighted and contradictory." But as your editorial acknowledges in passing, there is a fundamental difference between these public employee pension plans and the privatization schemes some in the financial industry advocate: the latter involved individual accounts, while the former do not. Public pensions, including Social Security, reduce risk; private accounts would magnify it.
Unions, you write, support measures to "collectivize risk." So we do: We support health insurance, which collectivizes the risk of illness or injury, and home insurance, which collectivizes the risk of damage to property. No one suggests replacing these risk-sharing arrangements with private savings accounts, even though from a financial standpoint insurance policies produce a negative return.
Likewise, we support Social Security -- which, let's not forget, is formally known as the Old Age, Survivors and Disability Insurance system. Arguments that stock market investments might produce a higher return, even if correct, miss the point: The purpose of Social Security is not to make anyone rich, but to ensure -- as it has so successfully for the past 60 years -- that no American is left impoverished by old age, disability or the death of a spouse or parent.
Richard L. Trumka
The May 3 issue of Pensions & Investments included an article called "Growth from DC assets slows." At Putnam Investments, defined contribution mutual fund assets grew by 30% year over year, from 1997 to 1998. However, that was not reflected in the article.
An accurate year-to-year comparison could not be made because the criteria Pensions & Investments used to calculate assets were changed from 1997 to 1998. The changes were not reflected in the article or the table. Had they been, the results for Putnam -- and other companies -- could have told a different story.
Specifically, 1997 figures excluded IRA and Keogh assets only from reported figures, while 1998 figures excluded IRA, Keogh and SARSEP assets.
C. Nancy Fisher
Glue too strong
I realize advertising is one of the strongest revenue drivers in the media industry, and applies to the publication business as well. Therefore, I can understand that your publication will put in a considerable effort to attract new advertising. There is, however, one option you recently selected that you would be better off without.
I refer to the insert on page 17 in the June 14 issue. It totally diminishes your magazine's value to me; the way it is attached is horrible. I tried very patiently, with more skill than necessary, to remove it so I could read the portion of the article on page 17 that was covered by this stupid insert.
The glue, however, was so strong that the page got torn. Besides, the insert was of thick card stock paper, and the magazine is nice, thin and glossy paper. You don't have to be a rocket scientist to figure out which of the two will tear in a tussle!
You probably know your readers well, but I assure you that I don't have the time to waste in such insipid exercises, so please refrain from similar exercises in the name of advertising. Remember, the real value of the magazine is in its content. At least that's the way I, a paying subscriber, look at it.
sr. portfolio advisory analyst
American Century Investments
Kansas City, Mo.
I'd like to respond to "Not on the Internet, please," which ran in the June 14 P&I.
Richard D. Glass' arguments against Internet advice for 401(k) participants is one-half exactly right and one-half exactly wrong.
He is absolutely right in his assertion that it is naive to expect individuals to pick up sophisticated concepts from the Internet. However, he is equally wrong in concluding this negates the benefits of Internet advice. On the contrary, his arguments actually make a convincing case that it is investment education rather than investment advice that will be ineffective over the Internet.
At root is a misunderstanding of what advice actually includes. Advice, when effectively delivered, does not attempt to help "participants to pick up sophisticated concepts from materials distributed over the Internet." In fact, effective advice will achieve the opposite -- it will shield the participant from these sophisticated concepts. By placing an intuitive, easy-to-use "wrapper" around the statistical innards of the system, individuals can be led to an appropriate decision without having to be "educated" on investment principles. An appropriate analogy is the automobile, where people entrust their mortal (rather than financial) futures to a technology with nothing more than a cursory understanding of what's under the hood. So long as the controls are familiar, drivers seem to manage quite well.
Furthermore, Mr. Glass overlooks that even the most sophisticated institutional investors make extensive use of the same tools provided by Internet advice, tools to translate knowledge into operable, real-world decisions. Knowledge alone, no matter how extensive, is clearly insufficient without the tools to help make an actual decision. The burgeoning Internet advice industry is nothing more than the delivery of these tools to individuals who are unwilling or unable to obtain them themselves.
Brian M. Rom
Per Pensions & Investments' definition of "advisory" assets vs. "discretionary" assets, I am enclosing a revised firm profile for Campbell, Newman, Pottinger & Associates Inc. of Mequon, Wis.
I have revised the questionnaire according to Pensions & Investments' definition of "advisory" accounts to be those that an investment adviser merely provides recommendations to, but does not manage the assets.
Campbell, Newman, Pottinger & Associates Inc.'s worldwide assets as of Dec. 31, were $1.691 billion, of which $1.136 billion was U.S. tax exempt. As of the same date U.S. institutional tax-exempt assets managed internally were $1.1 billion. The asset mix was 92% stocks, with $1.007 billion was in large cap growth equity; 7% bonds, with $82 million in enhanced index bonds; 1% was in cash. Please accept our apology for the inconvenience caused by this misunderstanding.
Wendy W. Stojadinovic
Campbell, Newman, Pottinger
In your May 17 ranking of investment managers, you list NISA Investment Advisors LLC with $11.2 billion in tax-exempt assets as of Dec. 31. NISA actually had $9.8 billion in tax-exempt assets (all internally managed U.S. institutional fixed income) Dec. 31.
Gregory W. Trotter
NISA Investment Advisors LLC