Pensions in the New York Times

by Daniel on April 23, 2004

I thoroughly recommend this article in the New York Times. While I have no particular opinions on the management of the Maine state pension fund (well, if you really needed one, I daresay I could get some for you cheap rate), it’s a nice and clear explanation of an interesting little part of an issue that I’ve always thought the plain man should be more interested in than he in fact is.

{ 12 comments }

1

Mat 04.23.04 at 10:44 am

Now that someone in my family lost all his pension, after having dutifully paid up all his life, the subject has suddenly become more interesting…
Transfer of risk indeed. But that NYT article seems to me straight out of a parallel universe. “Sorry, what are you doing with those people’s money?”

2

Jeremy Osner 04.23.04 at 1:54 pm

Interesting… I have all my pension money in 401(k) accounts invested in mutual funds. Is it possible for me to duplicate this strategy on my small scale? Vanguard (where my principal account is located) advises me to invest 60% “in bond funds” and 40% “in stock funds” — is this the same as matching?

3

Steve Carr 04.23.04 at 4:00 pm

Jeremy, how old are you? If you’re under 50 (or maybe even under 60), having 60% of your money in bond funds is a mistake. You’re giving up sizeably larger returns in exchange for only a small reduction in risk.

4

Jeremy Osner 04.23.04 at 4:02 pm

Sorry, reversed those percentages — it is 60% stock, 40% bond — my previous question still applies.

5

dsquared 04.23.04 at 4:04 pm

“Matching” doesn’t apply in your case because you’re not a fund. You don’t have any liabilities, so there’s nothing to match.

6

Jeremy Osner 04.23.04 at 4:09 pm

Thanks — that’s what I wanted to know.

7

Scott Martens 04.23.04 at 4:10 pm

The article doesn’t seem that clear to me. Am I to understand that Maine is selling bonds where the pay-out depends on the state’s assessment of its pension obligations? That makes sense to me, but it’s really just moving the risk onto the bond holder.

8

Scott Martens 04.23.04 at 4:10 pm

The article doesn’t seem that clear to me. Am I to understand that Maine is selling bonds where the pay-out depends on the state’s assessment of its pension obligations? That makes sense to me, but it’s really just moving the risk onto the bond holder.

9

Scott Martens 04.23.04 at 4:12 pm

There’s a bug in your copy of MT – it pops up an error if you comment from the “permanent link” screen.

10

dave heasman 04.23.04 at 6:29 pm

It shouldn’t be news,should it? You have fixed liabilities in the future, and there are securities you can buy to ensure those liabilities are met. Wouldn’t it be prima facie criminal not to? Why did they make light of the Boots fund switch? It was nothing to do with regulation, or everyone would have, it was just obvious good practice.

Now, what will this do for the purchase of equity investments, and all the lucrative commissions, transaction fees and other pelf accumulated by advertisers in the NYT?

11

Natacha 04.23.04 at 7:27 pm

The Alliance for Justice has launched a new website urging Justice Scalia to recuse himself from the Cheney energy case! Check it out: http://www.ChooseToRecuse.org Scalia can recuse himself anytime before the Supreme Court renders its decision.

There is a great flash animation that goes with it too. You have to see “Quid Pro Quack” http://www.allianceforjustice.org/action/scalia/flash.htm Duck’em!

12

Kilroy Was Here 04.23.04 at 10:47 pm

This seems like a real interesting subject, but I don’t feel like I have enough of the basic background to understand it well enough.

I understand DC plans very well. I don’t have a good handle on DB plans or the strategy for managing those sort of portfolios.

In particular, what sort of actuarial analysis is done on the pension? Is it the same that is done on fixed annuities w/ lifetime payment and inflation protection?

Anyone have a good book or two to recommend on the subject?

Thanks again,
Kilroy

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