Pension Funds

(Thanks to Steve Sass Associate Director for Research Center for Retirement Research at Boston College for the Pointer)

Managing public pension reserves
Part II: Lessons from five recent OECD initiatives
Robert Palacios
July 2002

A good overview Paper which outlines the benefits and hazards of various pre-funding schedules for Pension Funds. Several aspects should be defined by the Discussion before decisions should be debated. Primary stands the fact no one wants Benefits to be diminished by Benefit Cuts of any type(this includes Price-indexing Benefits), and Down-the-Road political pressure would likely eliminate any such Benefit-cutting scheme. The second element should be statement that current political leadership opposes raising the pre-funding taxation, but it could be the most potentially effective of all measures(recognize it is only viable with sharp alteration of Fund practice). So-called Investment pre-funding will only work if it is actual economic Investment, and not a slush fund to pay current Operating expenses for the Government.

This Author will restate his plan for Social Security reform:
1) Establish a Unitary (One-Rate) Benefit for all Recipient Retirees.
2) Deposit all FICA taxes into Federal Reserves accounts, which will pay all current liabilities, and invest excess monies with 4% loans to Individual banks--who can account such loans as increases in their Reserve requirements.
3) Establish a Delay system of Means-testing of Benefits, where Income earned by Retirees in their last Five years of contributions, if Above a certain defined limit, will delay the start of Benefits receipt; this will not affect the start of Medicare benefits.

The Unitary Benefit assures All will receive equal benefit from the program. The Federal Reserve accounts would assure the safest rate of Return on Investments to prefund Pension liabilities with the least need of supervision, and forestall political usage of the monies for current Government Operating expenses. The Delay system of Means-testing places Recipient loss closest to his Worker-earning Gain. The One-Rate monthly Benefit allows for efficient Wage-indexing of Benefits, and a valuable Tool to moderate economic performance through assigning exactly when future Benefits will be increased. lgl