April 4, 2004
The biggest problem I see is simply that too many workers, especially younger workers, dont even know their 401k, ira, pension, etc. is being turned over to mutual fund managers to invest. Many younger folks and too many middle age workers find the statements confusing even to the extent of determining how much they have for sure. Ive talked to many workers from different companies and they simply dont know. Many, in good faith, have left it up to their employer. This has proven, as could be expected, to be somewhat risky. In my opinion many corporate pension fund managers may have been directed to invest in high risk stocks/mutual funds in an attempt to lower contributions to pensions. The penalties for this egregious behavior should be severe and deterrant to the extreme. Instead it appears that Congress, in collaboration with corporate lobbyists, has taken an accomodative approach to the tune of some 80 billion, something I find especially odious and likely to encourage pension fund managers to take even more risk. Some mutual funds and index funds automatically buy equities when they receive inflows no matter what the going price is and are therefore vulnerable to price manipulation. That practice in itself is suspect in my opinion.
I would favor a quality of investment clause for any retirement monies ira, 401k, company pension, etc. invested in equities and managed for the individual. Individuals who manage their own retirement funds would be exempt. The clause could include restricting investments in stocks with credit ratings less than aaa for example, and stocks with debt, especially large amounts of debt. Other requirements might include dividend yield minimums and a minimum earnings standard. Theres an abundance of outstanding companies that would qualify. It seems uncommonly stupid of oversight to allow retirement monies to find there way into high risk investments through poor or corrupt mutual fund/pension fund managers. And I have to say it seems especially suspicious that oversight has not been proactive in stopping it. Retirees will become an increasingly larger part of the economy number wise. It makes no sense from a federal tax revenue perspective to risk having an ever increasing segment of the economy at a low standard of living when underpinning retirement income is such a simple matter. This set of standards could be set to protect those whose retirement funds go to mutual funds for management. Stiff penalties should be swift and deterrant in nature for mutual/pension fund managers who lose retirement monies even on a year to year basis. Theres really no excuse for it. A well diversified fixed income portfolio with some exposure to the SP 500 is all that is needed for sound retirement investing. Can we not say that the major losses in retirement plans now and in the past have been related to unnecessarily high risk to equities and those funds that were not kept out of reach of corporate boards? Discretionery investing should not be allowed with retirement money. It would be quite different if individuals were being informed and educated about their retirement plans by their employers but the proof is in the pudding. Theyre not informed and theyre not being educated effectively in my view and therefore precious little input from them influences how their pension money is invested. Its quite understandable that younger workers might be naive about whats going on with their retirement plans. For this reason alone I believe that education regarding retirement planning should begin in high school. Its quite depressing that there are those who would scheme to raid or put those plans at high risk and then do it, with what appears to be blatant arrogance, in plain sight of those who would call themselves overseers. Maybe there should be a few stiff penalties for overseers when workers pensions are diminished or lost. The portfolio I have suggested is very simple and sound and my guess is that many in Congress, the SEC, and corporate management alike are using a semblance of it at the core of their retirement strategy not to mention pension and mutual fund managers. Rein in these abuses and empower future retirees. I think it can be accomplished without undue restriction. Theyll have more income to spend. How hard is that? Not much harder than locking your locker at school really.