Pension Reform - Why Wait?
The evidence that something is awry in global pension land is everywhere. While Rome burns, reform proceeds at a snail's pace. BenefitNews.com reports uncertainty about when Congressional action will occur in the U.S. Abroad, the pace of reform is different, depending on the country.
Is delay good or bad?
In his May 24 posting, American Enterprise Institute resident scholar Norman J. Ornstein makes a compelling case for acting now to reform what most people describe as a broken system. He advocates a national infrastructure that would give employees solid investment choices along with portability. While having the right to take your accumulated retirement monies from job to job makes perfect sense for today's mobile work force, we're haunted by the inevitable question about investor readiness.
Are employees willing and able to take full responsibility for making good investment choices? What role should employers play with respect to providing investment education and possibly exposing themselves to liability for offering "bad advice"? (These questions apply to defined contribution plans of any sort.) Other issues prevail.
Who picks up the tab for large unfunded liabilities that get either frozen or outright terminated? How do we best transition from point A to point B without exacerbating the situation for already troubled companies? One proposal, requiring immediate funding of high risk plans, might push sponsors into bankruptcy, thereby creating a host of unwelcome problems. States are not immune and are starting to enact legislation to do likewise. Whether these pension stabilization funds solve the problem or simply pass the buck to the taxpayer is debatable.
Finally, it's not a foregone conclusion that all reform is good. In fact, as columnist Rob Norton so nicely describes, there is a bounty of research that documents the law of unintendend consequences. Simply stated, the idea is that regulation is likely to change behavior in such a way that new (and more acute) problems arise as a result.
An alternative is industry self-regulation. While the economic merits of a free market approach are significant, it would probably be difficult to get politicos onboard.
Changes must occur. Let's just hope that regulators consider the opportunity costs and all potential outcomes for the $10 trillion retirement benefits market before speeding along the wrong path.
Is delay good or bad?
In his May 24 posting, American Enterprise Institute resident scholar Norman J. Ornstein makes a compelling case for acting now to reform what most people describe as a broken system. He advocates a national infrastructure that would give employees solid investment choices along with portability. While having the right to take your accumulated retirement monies from job to job makes perfect sense for today's mobile work force, we're haunted by the inevitable question about investor readiness.
Are employees willing and able to take full responsibility for making good investment choices? What role should employers play with respect to providing investment education and possibly exposing themselves to liability for offering "bad advice"? (These questions apply to defined contribution plans of any sort.) Other issues prevail.
Who picks up the tab for large unfunded liabilities that get either frozen or outright terminated? How do we best transition from point A to point B without exacerbating the situation for already troubled companies? One proposal, requiring immediate funding of high risk plans, might push sponsors into bankruptcy, thereby creating a host of unwelcome problems. States are not immune and are starting to enact legislation to do likewise. Whether these pension stabilization funds solve the problem or simply pass the buck to the taxpayer is debatable.
Finally, it's not a foregone conclusion that all reform is good. In fact, as columnist Rob Norton so nicely describes, there is a bounty of research that documents the law of unintendend consequences. Simply stated, the idea is that regulation is likely to change behavior in such a way that new (and more acute) problems arise as a result.
An alternative is industry self-regulation. While the economic merits of a free market approach are significant, it would probably be difficult to get politicos onboard.
Changes must occur. Let's just hope that regulators consider the opportunity costs and all potential outcomes for the $10 trillion retirement benefits market before speeding along the wrong path.
