[quote=Parabolica]The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.
Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?
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RETURNS AND STABILITY provided by professional managers? ROTFLMAO!! Oh you’re serious…
ever consider that the local city/county $hit for brains pension system as well as CalPERS are run by so called “professionals” and look where we are today!!
As it stands, the “tax payer” is the financial back-stop for a corrupt/mis-managed portfolio strategy (that only guarantees payouts BUT has no control on investment vehicle returns)
FWIW here is a link to an article about an investment scheme that has the very same characteristics you are seeking… because of the STABILITY of double-digit RETURNS and the reports of serious wealth creation…
humans by nature are impulsive and irrational, so for the big bets that we as a society can’t afford to lose, its time to scrap the complex/corrupt “professional” portfolio management style and switch to a PASSIVE investment model
[quote=CA renter]
You’re also clearly ignorant about the differences between DB and DC pensions. DC plans have higher administrative costs and lower returns; DC plans have access to fewer investment options; DC plans don’t pool longevity risk; DC plans have lower contribution limits than DB plans (for employer and employee); and DB plans can remain in higher-yielding and more diversified investments and can better manage the ups and downs of the market over time because they are continuously funded by the contributions of current employees and their employers, and benefits are staggered well into the future (pooled investment risks over time and number of people).[/quote]
News reports about CalPERS and the SD pension board, leads me to believe idiots who over estimate their own management abilities AND have no basic understanding of math or the investing paradox, are at the helm.
Given your logic since CalPERS and SD have “professional” managers, elected board(s) to provide oversight and access to diversified investments, then why haven’t they beat the market benchmarks (i.e. the index of the DJ30 or S&P500)?
Simply stated a disciplined small/individual investor can beat market averages over long periods of time, because their trades fly under the radar and are “un-noticed” by the market.
However when the portfolio is in the BILLIONS (as is the case w/ SD), or the HUNDREDS OF BILLIONS (as is the case w/ CalPERS), any trade they make I’d argue is the market (so a different investment style is needed).
[quote=phaster]
[quote=livinincali] The one benefit of defined benefit contribution plans, retention, isn’t worth the risks, the frauds, the vote buying, and everything else it enables. That’s the bottom line. The rewards (reduced training costs retention, etc.) don’t outweigh the risks and therefore they should be scrapped..[/quote]
Agree! And after doing some research, seems the best way forward is to follow the example set by the Thrift Saving Plan (a federal government 401K style program, that can’t be corrupted/mismanaged like what happend at CalPERS or as what is happening with the SD pension program)
The Thrift Savings Plan, used by millions of federal workers, is like a 401(k), except it’s a lot cheaper. Last year it charged an average expense ratio of a mere 0.03%. That means just $3 in fees for $10,000 in savings, or $30 for a $100,000 portfolio.
John Turner, an economist and director of the Pension Policy Center and a former federal worker himself, said “Unless they’re advanced investors, I think they should leave their funds in the TSP because it’s simple and it’s easy enough that most investors can do it and do it well”
no matter where one stands one the political spectrum, I’m sure all would agree we as a nation are in general mostly consumers NOT savers/investors
(if I were king) to encourage long term savings/investment and try to eliminate short term market volatility, I’d keep the “low” long term capital gains tax on equities in place BUT I’d set the short term capital gains tax “much higher” (at least 60%)
high taxes on short term trades would discourage high-frequency computer algorithm trades as well as discourage the average investor who feels the whim to sell/buy into the latest investment fad when they see the talking heads on CNBC/Bloomberg/etc.
there is also too much corruption in the system which is vary bias against the little guy trying to step up on the bottom rungs of the economic ladder, so IMHO its important to economically incentive long term savings/inventing in passive accounts
I’d like to try a progressive-inversive matching program, which means I’d borrow the idea of a euro basic income program, BUT the twist would be that it would only be used to save/invest for an individuals retirement (not to be used for short term consumption which has adverse affects on the global environment)
to seed an individuals portfolio all citizens below the age of 18 (but above age 10) would be given a token amount for a their own TSP like retirement account that could not be taken out till they turned say 65 (this way money could be grown by compounding)
I’d think with an infusion of “stable” stockholders US companies would not have to worry “as much” to cook the quarterly stock returns to appeal to talking head “analyst” ALSO figure by staring young this would cement the concept of compound math in student (while still in middle school)
don’t think such a program would cost any real money because it would be “credit” that could not be spent (hence no “inflation” or increased velocity of money)
this idea might sound complex/radical, but actually pretty sure in the long run it would simplify and clearly signal to everyone that its important to save for the long term
so wrt “working” at some fast food chain or at some other service job
-say a person earns 10k annually and manages to save 10% for a TSP like retirement account (then I’d want to have the government double the match, in other words put in $2000)
-say a person earns 20k annually and manages to save 10% for a TSP like reti)rement account (then I’d want to have the government the match 10%, in other words put in $2000)
note the amount stays the same, but as a percentage it goes down (and of course there would have to be a cap/cut-off)
-say a person earns more than 60k annually and manages to save 10% for a TSP like retirement account (then I’d want to have the government give a tax credit like in an IRA deduction, which is an economic signal to higher wage earners to save/shelter money for retirement)
as it stands today the system IMHO is very inefficient with various overlapping administration and means-testing costs, and there is no clear signal for individuals to save/invest for retirement
so as envisioned a forced basic saving program should eliminate inefficient administration costs, eliminating causes of short term market volatility, etc…
yeah I know this does not directly address the big wealth gap between people working at service jobs vs CEO/investment-bankers but its taken 30+ years for the condition to come about so there is NO easy/painless way out of this fucked up economic mess…
