The following are in response to our article, Can Our Retirement System be Fixed?, which appeared last week:
Dear Editor,
This was an excellent article, but the author missed Ghilarducci’s primary aim. As an academic with a decidedly socialist political leaning, it should be obvious to even the most casual observer why her arguments for the mandatory government-run scheme don’t hold up to scrutiny. The “redistributive” aim of the $600 credit should scream loud-and-clear that this kind of proposal should not receive any serious consideration.
In typical fashion, the usual carrot for private-sector support of these proposals is that asset managers will have a chance to bid on management of the assets once the new system is in place. That is a mirage, as once the law is put into effect that promise will quickly disappear for the exigencies and “fairness” of having the money run by less expensive in-house managers (government employees) based on the idea that the private sector should not benefit from the management of the public system. The results of government-managed schemes are fairly pointed out by the author of your article.
While there are undoubtedly flaws in the current retirement system that need addressing, the “solution” proposed by Ghilarducci introduces agency problems that are truly insurmountable. It doesn’t take much of a leap to see the funds being held in these “private” accounts getting borrowed to “stop-gap” public use issues, and to delay tax and spending reforms longer. Social Security part two!
Which is exactly her aim... It is a lot easier to confiscate the accounts once you have them consolidated under a single umbrella. The temptation grows ever stronger as the size of the private savings pool in this country is almost too much to bear for the politically motivated bureaucrats in the Capitol now.
In other words, Ghilarducci is not attempting to solve the problem; she is attempting to find a defensible rationalization for socializing private savings and redistributing her winnings ….
Steven W. Glasgow
Avondale Partners, LLC
Nashville, TN
Dear Editor.
I found your article very intriguing. Although there are many sides of the investment argument Ms. Ghilarducci poses, there is no denying the fact that Americans do not save enough money for retirement. An interesting innovation in the 401(k) arena is being offered by Dimensional Funds Advisors’ (DFA) is their managed-DC plan. While technically a DC plan, DFA has added many features of a defined-benefit plan into this new type of 401(k). The main goal of the program is to get the employee to save enough money to replace their monthly income. So instead of picking investments, a participant will enter data such as salary, Social Security benefits, pension etc., and the program will tell them how much they need to save to replace, on an inflation-adjusted basis, their income. As the participant ages and gets closer to that goal the program will start moving the money to a cash-preservation strategy.
Another unique feature of the DFA Managed DC is its similarity to a target-date fund, but with an individual goal-driven glide path. So if two 40-year olds, with the same salary, want to retire at age 65, the program will account for each participant’s current assets in the plan. Let’s say the end goal (hypothetical of course) is two million dollars for each, but one of the 40-year olds has $500,000 saved and the other one has $100,000, each will have a different glide path because one is closer to the goal. Even more impressive, each participant will have a different allocation, so in essence each will have a hybrid of a target-date fund and a separately managed account of DFA funds.
Although the 401(k) arena is not my market I find this new concept fascinating.
Jeffrey A. Bogart
Bogart Cunix & Browning LLC
Mayfield Heights, OH
Editor’s note: Wade Pfau recently wrote about DFA’s offering here.
