From: Joseph Marsden <marsden.joseph@worldnet.att.net>
Subject: Senators Kolbe and Stenholm
First, let me say that I appreciate the obvious care and effort that you put into designing your plan. Even from the thumbnail sketch provided, it is clear that you have honestly faced the problem before you, and that you have not let preconceptions or political agendas dictate your decisions.
Naturally, after that complimentary lead in, I have a critical comment.
The single most significant aspect of your plan is that it adds individual accounts to the national retirement system. While other proposals rely far more heavily on individual accounts than does your plan, that should not be allowed to obscure the fact that you are proposing a very significant change to the existing system.
The experience we have in this nation with individual account retirement plans, both as qualified employer retirement plans and as individual retirement accounts, is very limited, and the period during which such plans have really become significant corresponds to one of the most remarkably good investment periods in the nation's history. Throughout most of our nation's history with such plans, participants have been very pleased with them, largely based upon the performance of the underlying investments. A question that has not really been addressed buy this history is, what happens when the investments do really poorly?
For IRAs, it is pretty clear that the result would be that the IRA holder suffers; for employer plans, there would likely be some pressure on the employer to top up benefits at least a little bit, if it was at all feasible to do so, but there would be no legal obligation in this.
For a national retirement system, however, I think it is very likely that, one way or another, the government will end up guaranteeing investment performance. I fully realize that you have maintained a safety net in OASDI with your plan, but I do not think that a whole generation of retirees who have been expecting to have $30,000 a year to retire on will be satisfied with having $15,000 a year.
As politicians, what do you think would be the political consequences at that inevitable point in the future when poor investment performance leaves a generation of retirees feeling that their retirement income is inadequate? And how would you plan for that event?
