Bogle: Mandates not needed; compensation 'out of control'

John C. “Jack” Bogle is firmly against mandates when it comes to everything, from setting a single retirement age to requiring that employers set up retirement savings plans to creating a retirement income adequacy target.

As an active 85-year-old employee of Vanguard Group Inc., Valley Forge, Pa., which he founded in 1974, Mr. Bogle said he is living proof that generalizations don't work when it comes to retirement.

Speaking June 23 at Pensions & Investments' Investment Innovation & the Global Future of Retirement conference in New York, Mr. Bogle — in a conversation with Barbara G. Novick, BlackRock Inc.'s New York-based vice chair and chair of the firm's government relations steering committee — stressed that he is not retired and doesn't know when he might retire.

While he has eschewed day-to-day operational oversight of the $2.6 trillion mutual fund manager, the former Vanguard CEO said he's “in the office every day, cranking out ideas about making the financial system better” and more dedicated to the interests of shareholders.

One idea is to encourage institutional investors and money managers like Vanguard and BlackRock to be prepared to vote for minority shareholder proposals, especially regarding executive compensation.

BlackRock and Vanguard between them own about “10% of corporate America,” Mr. Bogle said. “Executive compensation in the U.S. is out of control,” he said, and “we can do better than 5% to 10%” levels of support on shareholder proposals that deal with more rational executive compensation.

Other quick, but pithy opinions Mr. Bogle offered in response to Ms. Novick's questions:

• The “massive shifting of risk to employees from employers” will continue as defined benefit plans continue to be frozen.


• Chief investment officers of defined benefit plans that do remain open will find it very hard to meet their 7.75% assumed return rates. (“How in peace will you ever get there?”).


• Defined contribution plans are “an enigmatic system which is counterproductive, since companies often stop making contributions during down markets, right when it's a prime time to be buying.”


• Individual retirement accounts could be a good solution for the more than 50% of American workers who don't have a company-sponsored retirement plan, but contributions have to be consistent.


• It might not be appropriate to try to push retirement plan savers out of cash because “it's not wrong for some people to be conservative.”


• Retirement income adequacy can't be mandated, but annuities may be one way to increase the chance of it happening. Yet Mr. Bogle said he hasn't “ever been able to make the math work. They may work if they aren't overpriced.”

Given his own active work life, Mr. Bogle said he doesn't support setting a firm retirement age because it's “very hard to generalize” when someone should retire or what investment strategy would best serve retirees.

Mr. Bogle, who launched the world's first passively managed mutual fund in 1975, remains among the most committed supporters of index management. “We need more indexing in defined contribution plans. There is no doubt about it,” he said. He reiterated that historical experience shows returns of passive managers continue to exceed those of active managers over time.

Rather than obsess about market changes, Mr. Bogle suggested 401(k) plan participants “do nothing and enjoy the benefits of the market.”

In fact, Mr. Bogle's advice for defined contribution plan participants is to ignore the market, and not open their account statements until right before they retire.

“The excitement (plan participants) will feel when they open that last statement will far exceed the boredom of indexed management. They will be amazed at how big their accounts are!” Mr. Bogle told the lunchtime audience.

Mr. Bogle also borrowed a phrase from William Shakespeare when he said global markets are “full of sound and fury, signifying nothing,” noting that focusing on short-term market movements is futile.

Mr. Bogle has been a defined contribution participant since 1951, when he joined Wellington Management and earned $250 per month at his first job out of college. His DC assets rolled over into Vanguard balanced index funds after he started the company and have remained there since.

“You would not believe how it has grown,” Mr. Bogle enthused. He said his defined contribution plan account is his largest single asset, without giving its size.

Mr. Bogle remains an active employee at Vanguard, which means his DC account “just keeps growing tax-free.”