Month: October 2003

“Business’s Killer I.O.U.: New factories? More workers? They’ll have to wait. Pension shortfalls are costing corporations billions“: Keith Naughton for Newsweek via MSNBC reports how huge pension funding deficits are preventing business expansion and delaying economic recovery.

The Center for Retirement Research at Boston College (CRR) posts this study: “How Has the Shift to 401(k)s Affected the Retirement Age?” The study, authored by Alicia Munnell, Kevin Cahill, and Natalia Jivan, all of the CRR, explores how work incentives differ by type of pension plan. The authors find that a typical worker with a 401(k) plan would be expected to retire fifteen months later than a worker with traditional pension coverage. A press release summarizes why this is so:

401(k)s may lead to later retirement for three reasons. First, 401(k)s do not have the explicit early retirement incentives that are typically embedded in traditional plans. Traditional plans often pay more in lifetime benefits to individuals who retire at age 55 or 60 than to those who retire at 65, a provision originally developed to encourage workers to retire as their productivity declines. Second, benefits in 401(k) plans are typically paid out as a lump sum rather than as a lifelong stream of monthly payments. Individuals may behave differently when receiving lump sums, tending to spend more slowly to avoid running out of money. If so, they may prefer to compensate by working longer to build up a larger lump sum. Finally, individuals may consider 401(k) benefits less reliable than traditional pension benefits due to investment risk. This source of uncertainty may make workers more cautious about leaving the labor force.

Regarding the battle over disclosure of performance returns of private-equity investments by public funds, the Wall Street Journal today reports: “University Loses
Battle to Stop Data Disclosure: California Court Lets Stand Ruling Requiring Release Of Investment Information.” Quote of Note: “The California Supreme Court let stand a lower-court ruling that required the data be released. The ruling is a setback for public pension funds and venture capitalists that have resisted increasing demands to release the data under public-records requests; they have argued that doing so would put them at a competitive disadvantage.” Also from the Mercury News: “UC appeal rejected by court: Investment Data Must Be Disclosed.” The latter article reports California Judge James Richman as also ruling that “minutes of UC Regents investment meetings should be disclosed.”

Also, from the Wall Street Journal: “Fees Jump on College-Savings Plans Commissions for Brokers Are Raised by Fund Firms As Record Amounts Pour In.” The article discusses how fees incurred for 529 college-savings plans have increased sharply and notes that “sales commissions on broker-sold plans are often waived or reduced when you buy them through your employer.”

Other articles of importance from the Wall Street Journal:

• “Lucent’s Former CEO To Defend Cuts to Retirees.”
• “Wal-Mart Cost-Cutting Finds Big Target in Health Benefits Restrictions, Tough Stance on Basic Claims Keep Its Outlays Below the U.S. Average”

A press release has been issued by Watson Wyatt regarding a report entitled “Pensions in Crises“: “Pension Underfunding Remains Widespread But Represents Just 4 Percent of Corporate Assets: Corporate Pension Fund Contributions Set to Double Without Regulatory Fix.” Quote of Note: “Relative to total corporate assets, the unfunded pension liabilities of most large companies are not excessive,” says Sylvester Schieber, director of research at Watson Wyatt. “Unfunded liabilities should always be monitored. But the real problem with the pension system is a regulatory environment that actively discourages not only the full funding of future liabilities but the very idea of pension plan sponsorship at all.”

Scott Burns for the Houston Chronicle has this: “Switching 401(k) to index funds OK for big balances.”