High Risk Is Out of Place in Managing Pension Funds
Orange County is in bankruptcy, a headline on Dec. 7 states that “20,000 Nationwide Invested in Phony Retirement Plans,” and a few days earlier another headline proclaimed that the private pension funds of this country’s private corporations were short billions of dollars of what they should have in their reserves.
For those who accept the concept that such risk in finances is an unfortunate but unavoidable part of our “free enterprise system,” such gambles may be acceptable but these risks are totally unacceptable to those who are trying to put aside savings for retirement or who are already retired and hoping to budget their assets for their needs now that they are no longer able to work. The news from Orange County indicates that such a risk approach to the handling of government and certain corporate funds is also destabilizing and also may no longer be tolerated.
The Orange County experience shows that government funds, including bond funds, pension funds for employees, operating budget funds, etc., must not be left to the mercy of the securities market and the judgment of financial consultants.
The message that is crying out loudly by the above developments is that there is the need for the establishment of a category of “retirement quality securities” that can be used by those saving for retirement, those handling trust funds or any other funds that cannot be put at risk and are not adequately serviced by banks, that can be used by such funds with the assurance of safety. Such “retirement quality securities” might have to forgo the possibility of speculative long-term growth but would offer a modest earning assurance over the long run. Such “retirement quality securities” would provide a secure haven for corporate retirement funds that would give employees the assurance that their pensions earned over a lifetime of work would be there when needed, and such investment possibilities would relieve government entities of the danger that their funds would suffer the same fate as what occurred with Orange County funds.
Our country has ignored for too long the need for there to be available such an especially regulated section of the securities market. This may have been tolerable in the past. With the explosive growth of the retirement population, such relaxed approach is no longer tolerable for the private sector and, as Orange County shows, is no longer tolerable with government and trust funds. Continued ignoring of this problem must end. The public has a right to insist on immediate correction.
DANIEL COHEN
Member, California Assembly
