Missouri shows the way
I am an ardent fan of Pensions & Investments and especially appreciate the coverage you give to deferred compensation and the public sector. Unfortunately, I need to point out an inaccuracy in the special report on deferred compensation in the June 11 issue.
In the page 21 article, "States' interest in adding DC plans on the rise," it states the "first match plan was started in Tennessee in 1996."
The Missouri Legislature passed in 1994 a meager but landmark $25 a month match. It took effect July 1, 1995.
We realize this is not even a blip on the world scene, but we take pride in this accomplishment and would like to be recognized for it.
Allen S. Scott
employee benefits manager
State of Missouri Deferred Compensation Commission
Jefferson City, Mo.
Lillywhite `one of us'
To hundreds if not several thousand "pension and investment people" in the public, Taft-Hartley, and corporate sectors, Eloise Lillywhite, who died July 12, remained a favorite for half a century.
I personally enjoyed the privilege of bringing Ray Lillywhite and, just as completely, Eloise, into the investment services world via Alliance Capital in 1970. An even greater joy was the successful initiation of the Lillywhite Award upon Ray's retirement.
Unsurprisingly, upon Ray's recent loss of Eloise and the fully national visitation at her California and Utah funeral services, I pursued Pensions & Investments' editors in anticipation of appropriate press celebration of Eloise and her gifts to all of us.
Also, without complete surprise, I learned of P&I's policy of reporting only the events and people within the publication's broad professional constituencies, family properly excluded.
Fortunately, upon reviewing an obituary forwarded by Ray, I was reminded that Eloise had served for several years, in terms of P&I's constituencies, as assistant treasurer of the University of Wisconsin. The period was of course coincident with Ray's tenure at the Wisconsin Teachers' Retirement System.
Suffice to say that, as we always knew, Eloise had been one of us. That is memory enough.
Kenneth L. Holmes
Supporting 401(k) bill
Your July 9 "Advice from whom?" editorial raises important questions about the Retirement Security Advice Act introduced by Rep. John Boehner, R-Ohio, which the American Council of Life Insurers strongly supports. Mr. Boehner himself noted in a recent hearing on the legislation that his bill may not be perfect. But whatever its shortcomings, they are heavily outweighed by the bill's benefits to workers. Specially, the benefits are the investment advice that participants will be able to receive about their retirement nest eggs in their 401(k)-type plans.
The need for the bill now is clear. The market's decline has exposed many of the mistakes that workers have made in recent years in managing their 401(k)-type plans, with many investing too heavily in high technology and not appropriately diversifying their retirement assets. If Mr. Boehner's legislation was law today, perhaps workers' worries about their retirement would not be as great as they are now.
American Council of Life Insurers
High discount rates
I agree with your premise that there are many companies that use the discount rate as a way to manipulate short-term earnings ("Overly high rates defy SEC," Editorial page, Aug. 20).
However this FAS 87 rate has no bearing on the contributions that must be made to the pension plan. The Internal Revenue Service, not the Financial Accounting Standards Board, dictates the interest rates used to calculate the cash flow requirements into the pension plan.
There can be a significant discrepancy between the value of the accounting liability and the value of the liability driving the cash flow into the plan.
John J. Sweeney
vice president, pension investments and administration
Valley Forge, Pa
Social Security doing OK
Your reporter sounded so disappointed that Social Security reform will now likely get a fair hearing in the Senate ("Life after Jeffords: Shift may doom Social Security revamp," page 1, May 28).
Many Americans believe that Social Security has some modest financial issues. However, Social Security's surpluses are calculated to grow to well over $2 trillion, and few believe that there is any immediate crisis.
There are longer-term problems resulting from the retirement of the baby boomers, for example, increase in life expectancy and decrease in fertility. Perhaps we can push the Bjorn Borg solution, of which you reported (page 8, March 19), to resolve the fertility problem. In the meantime, we can make minor adjustments now to resolve the other modest longer-term issues.
One thing is very clear: there is no need to change to private individual accounts. Social Security is a social insurance program providing survivor, disability, as well as retirement benefits. No insurance program can be successful if it permits negative election.
The argument used by the so-called investment experts, that workers could get better returns by investing in the stock market, does not hold up when investment risk are taken into account. The baby boomers have built up a huge surplus in the Social Security trust funds. In fact, the $1.6 trillion projected "federal surplus" over the next decade is actually almost entirely Social Security trust fund money.
The switch to private individual accounts would cost today's and tomorrow's workers up to $7 trillion in transition costs, depending on how much of Social Security contributions are placed in private individual accounts.
Administrative costs for Social Security are very low - less than 1% of Social Security's budget. Diverting money to private markets would incur much higher costs of commissions, management fees and other expenses inherent in investing in the private markets. Small investment accounts are very expensive to administer. Wall Street brokers, fund managers, and insurance companies stand to make billions of dollars a year thanks to privatization. It is no surprise that they join the right-wing anti-government ideologues in the strong support of privatization.
Another argument against privatization is that the American working public of all ages would be against privatization if the risks and transition costs were explained fully. Polls do show that young people fear Social Security will not be there for them. This skepticism arises from the exaggerated media coverage regarding Social Security's financial condition. The pro-privatization movement has spent millions of dollars promoting the illusion that Social Security finances face a crisis. However, polls also show that 70% to 80% of young people approve of Social Security. Two-thirds of all adults favor strengthening the current system, and only 28% think Social Security should be privatized.
So despite your publication's views, working Americans now have a fighting chance to preserve the 66-year-old, most successful, complete financial program in history. And as I have stated in the past, working Americans will fight vigorously to protect Social Security.
United Federation of Teachers
Pensions & Investments welcomes Letters to the Editor and submissions of commentaries for the Other Views page. Letters and other submissions may be sent by mail to the attention of Barry B. Burr, Pensions & Investments, 360 N. Michigan Ave., Chicago, IL 60601; by fax, to (312) 649-5228; or by e-mail to [email protected]