Daily Commentary: On defined contribution pension plans
David Merkel at Aleph Blog has a good post on defined contribution benefit plans. As you probably know, in many developed economies, employers hate defined benefit plans because they have proved expensive for employers and they have shifted the risk burden for savings over to individuals. This is an important source of savings as birth rates go down and fewer children are available (or even in close physical proximity) for their parents in old age. It helps to fund all manner of health care and other costs that seniors have to content with.
It seems defined benefit plans are dead. David tries to develop an alternative to defined contribution that is a swag between the two. For my part, I think this issue of the great risk shift will become increasingly problematic. People do want control but they lack the foresight and the economies of scale to do the planning associated with retirement. Healthcare and pensions are going to increasingly come into the public spotlight, particularly in the local government public sector since the public sector is the last hold out for defined benefit. When the next downturn hits, these defined benefit plans will come under assault as states and municipalities struggle with funding issues.
I would like to see the risk shift away from individuals and even employers to government but how this gets done is the question.
That’s it for today. Here are the links.
Revenue generated by subscription services like Spotify, Rhapsody, Rdio, and others was up 13.5 percent (from $212.4 million to $241 million), according to the Recording Industry Association of America’s (RIAA) year-end music shipment statistics for 2011. The stats also revealed that total paying customers also rose by 18 percent.
Late last year, the spread was over 280 basis points. This means the investors were demanding extra incentive to buy riskier assets. Since then, the spread has narrowed to 180 basis points. That’s a dramatic change in just a few weeks.
The structural component is that global economic growth over the past few decades has outpaced the capacity of the world economy to produce truly safe assets. The cyclical component, on the other hand, is that because of the Fed’s monetary superpower status, U.S. monetary policy accentuated the demand for safe assets during the housing boom.
The Fed’s efforts prevented a "total meltdown" of the financial system at a time when fears of a second Great Depression were "very real," Mr. Bernanke said Tuesday at the third of his four lectures at George Washington University in Washington. "I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could’ve had a much worse outcome in the economy," he said.
I think that it is pretty certain that defined contribution [DC] plans 401(k)s, 403(b)s, 457s, much as they have grown to be dominant, have been a failure. Many, though not all people like the illusion of control, and seeing their cash balance – makes the pension plan tangible, even if they don’t get what they will really need at retirement.
To the wider public the facts of the case are mattering less for doing justice in the matter at hand, but more in a symbolic battle over what is wrong with America, and what needs to be fixed.
U.S. home prices fell for the fifth month in a row in January to the lowest level since early 2003, according to a closely followed index.
The Obama administration has not only refused to provide any of that information, but worse, the CIA is insisting to federal courts that it cannot even confirm or deny the existence of a drone program at all without seriously damaging national security. Numerous Obama officials – including the President himself and the CIA Director – have repeatedly boasted in public about this very program. Obama recently hailed the CIA drone program by claiming that "we are very careful in terms of how it’s been applied," and added that it is "a targeted, focused effort at people who are on a list of active terrorists, who are trying to go in and harm Americans, hit American facilities, American bases and so on."