Questions for Sam Beard

["Steven H. Johnson" <info@sscommonsense.org>]

Mr. Beard-

How would you respond to the concerns commonly raised about private
accounts by folks like Henry Aaron and Robert Reischauer?

Longevity risk. No retiree knows how much longer they're going
to live.  If they spend their savings too quickly, they run the
risk of outliving their savings.  If they spend too slowly, they
run the risk of not getting their money's worh.

Market risk.  As Gary Burtless has documented, using S&P data for
the past century or so, two identical savers can have dramatically
different outcomes at retirement.  The saver who retires at the
market's highest peak will have an annuity three times larger, as a percent
of his final pre-retirement income, than will the saver who 
retires at the depths of the market's worst trough. I've run the
numbers myself, and found the same results as Burtless.

High fees.  Millions of marginally employed participants in the 
system are not going to have very large accounts.  Typical fees
of 1% to 1.5% will eat up their accounts.

Employer headaches.  If we have two hundred different fund managers
handling PRA's, as we easily could, how much is it going to cost
employers to send timely deposits to each of them, on behalf of
each person on payroll?  Or, if the deposits aren't timely, aren't
the employees missing out on an important amount of income growth?

I think there are answers to all of these concerns if we have a
two-track savings strategy, one that combines a strong Trust 
Fund investment program with a strong PRA program.  
(See my opening comment Monday morning on the two-track option.)
But I don't think these are easy issues to resolve if all we 
have is a one-track savings strategy, that depends solely 
on PRA's.  I'll be interested in your thoughts.

-Steve Johnson.