Friday, August 28, 2015
Questions will be raised - probably the wrong ones
But there is another set of questions that is typically omitted. Given the fact that the stock market is volatile, why would you expect ordinary employees - who are supposed to be concentrating on their day jobs - to do a better job of putting away adequate funding for retirement - and investing what they do put away - than financial professionals? That's another way of saying, why should you push people into defined contribution pensions rather than defined benefit? If in fact 7.5%/annum is too high a target going forward and a lower rate should be assumed, how would ordinary folks know that in their planning? How would they know whether their implicit targets are the right ones? And what about the insurance aspect? When you pool risk, volatility tends to be smoothed out. There are folks who will be retiring at different times. New folks are entering; retirees are leaving. If everyone has individual accounts, there is no pooling. Note that the facile response that you can always stay on the job longer if things don't come out as planned may not work for folks who - perhaps due to an adverse health event - don't have that option.
Too bad the Committee of Two didn't ponder such questions. Too bad proponents of the pension initiative currently in circulation have no answers, even if they did ponder the right questions. Apart from what might be said in the public comment periods, will any Regents be raising the right questions at their upcoming September sessions? That's one question for which there is a clear answer.