Here are asome questions and puzzles for all the experts and pundits to ponder:
1. Why does GMs defined benefit pension system have about 1/10th of one percent of the number of participants that Social Security has---also a defined benefit pension plan---but has more than one fourth the amount of assets?
2. Why do do all of our other defined benefit pension systems in the aggregate, have ten times the assets of our Social Security system, but only cover less than one-third the participants, even though the benfits are often much more generous?
3. Why does our Social Security system cost more than double, perhaps triple, what a comparable defined beenfit pension system would cost in the private sector?
4. Why are there no laws that protect our people from cutbacks in accrued beenfits like those in the private sector?
5. Why is there not even a definition of what an accrued benefit is in Social Security, as there is in the private sector?
6. When is a pension surplus really an unfunded obligation?
7. How can we utilize the capital markets to dramatically lower the costs of Social Security, stabilze it's costs, provide a good deal for everyone, and at the same time help our economy become more efficient, all at the same time, and without jeopordizing the benefits of our citizens----nay even enhancing their security?
The answer to that last question is easy. Make it a true defined beenfit pension system.
America invented this system to do precisely what we are looking for in Social Security. Insurance actuaries left the insurance industry back in the late 50s---first by a trickle, then by the droves---to oppose insurance companies who once upon a time had a monopoly on corporate pensions--- to help create the infrastructure of defined benefit pension systems. It's evolution to this day shows how to fix Social Security.
One of the keys that has been lacking is an annual actuarial valuation report. This report is essential to any defined benefit pension system.
Rumors have it that one was actually produced many years ago---and when the results became noticed, was promptly squelched to prevent the truth as to the large unfunded obligations of the system.
The truth is that we can, after, a relatively small initial investment continued over years, reduce the cost enormously---and with not any increase in risk to participants. In fact, when done right, it enhances benefit security---greatly.
Ben Franklin once said, "A penny saved is a penny earned."
Right?
Wrong!
What good ole Ben actually said was, "A penny saved is two pennies earned."
Ben was no fool. He understood the power of compound interest.
And he also understood that saving means investing, and when you have a long time horizon as all pensions do, the proper course of action is to invest heavily in stocks because the payoff is huge and the risks diminish greatly over time.
You need discipline and accountability to do all of this, of course. That's what the combination of advance funding determined by an annual actuarial valuation report does, when combined with strong laws.
Asset allocation determines the bulk of returns and portfolio management is very much of a science these days--thanks to Harry Markowitz who got the Nobel Prize for understnding how to optimize returns and mitigate risk through proper diversification.
Its about time we learned some basics of how other defined benefit pension systems work and why our national defined benefit plan known as social Security doesn't.
