In the spirit of politics, lawmakers tend to paint rival Social Security reform proposals in extremes: If one privatizesand another preserves, then never the twain shall meet. The polarized way in which proposals are debated, morethan the actual substance of the proposals, makes compromise difficult. However, compromise doesn’t have to be so daunting a task. Considerable overlap exists among reform proposals presented by lawmakers on both sides of the aisle. Agreement can be found in the following areas.
Save the Surplus
Democrats and Republicans began competing in 1999 to create the best “lock box” with which to protect Social Security’s surplus. Until then, it was common for Congress to allow deficits in other parts of the budget to exceed the size of the Social Security surplus. Read the rest of this entry »
Few other innovations have made as big an impact on the fund industry as the mutual fund supermarket. Today’s popular version of the mutual fund supermarket was introduced by discount brokerage firm Charles Schwab in 1992 and has since transformed the way investors purchase and sell funds. Like the supermarket from which most people purchase food, fund supermarkets bring together a variety of similar products from different vendors. In other words, they allow investors to purchase and hold a broad range of funds from many different fund sponsors through a single brokerage account. Similar to the grocery version, fund supermarkets soared in popularity because of their ability to provide a high degree of convenience, breadth of product, ease of comparison and simplicity of transaction. Read the rest of this entry »
Social Security and other government entitlement programs for the elderly and near-elderly:
- Provide benefits that are growing at unsustainably high rates. Due to real growth in annual benefits combined with longer retirement, an average-income one- earner couple retiring at age 65 in 1960 could expect lifetime Social Security cash benefits to total $99,000 (in 1993 dollars). Today those benefits total $223,000, and in 25 years, $313,000.
- Have an enormous impact on the federal budget. These programs now comprise almost half of federal expenditures, and Social Security alone represents more than one-quarter of all federal expenditures other than interest on the national debt. By contrast, in the early 1950s, expenditures on retirement, disability, and health occupied less than 10 percent of federal expenditures. Read the rest of this entry »
To give you a sense of how fund shareholders are serviced, let’s follow a typical series of transactions beginning immediately after a prospective customer decides to purchase fund shares. In the first step, the customer completes and returns an application for opening a new account to the transfer agent. The application may be returned in a number of ways, including by mail, at a branch office (if one exists locally) or through the Internet. Once the transfer agent receives the application, the transfer agent determines whether it is in good order. Although the definition of “in good order” can vary somewhat among fund complexes, many core elements are consistent. The transfer agent always makes certain to obtain a social security number or taxpayer identification number (in the case of corporate accounts) for tax reporting purposes. The transfer agent also ensures that the initial funding amount complies with any account minimums specified in the fund’s prospectus. If there is any issue with the application, the application is considered to be “not in good order.” In that event, the establishment of the account and the purchase of fund shares may be delayed until the issue can be resolved with the customer. Read the rest of this entry »
Client research by Benefits, Inc. shows that plan participants may be usefully grouped into three major segments based on their attitudes toward, and sophistication with, investment concepts. Plan sponsors should consider positioning options to relate to the needs of each segment.
Insecure investors usually compose the largest single participant group. These individuals describe themselves as “beginner” investors. They express a lack of confidence and understanding in matters related to investing and doubt their ability to accumulate enough assets to retire. Their lack of confidence has pushed them into relatively safe investment choices such as money market, fixed income and stable value options. They tend to be the least well diversified. Some avoid participating in a 401(k) plan altogether because of their lack of confidence. Read the rest of this entry »
Focusing on the Investor, Not the Investments
Every day, defined contribution plan participants make investment decisions that will affect their income in retirement. Some make these decisions easily; others are less confident that they are making appropriate choices. Benefits, Inc. understands that participants‘ investment decisions should be driven primarily by an accurate assessment of their retirement income needs and the time they have to accumulate the appropriate nest egg. But Benefits also understands that participants‘ own personalities and attitudes toward investing are often a barrier that prevents them from doing the right thing. Benefits therefore attempts to target the plan design and communication programs it develops for its clients to take into account these behavioral differences. By understanding that there are different types of investors with varying concerns and needs, plan sponsors have an opportunity to provide employees with suitable investments—ones that improve the likelihood of being utilized effectively by participants. Read the rest of this entry »
