April 23, 2004

Pensions in the New York Times

Posted by Daniel

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.

Posted on April 23, 2004 08:33 AM UTC
Comments

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?”

Posted by Mat · April 23, 2004 10:44 AM

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?

Posted by Jeremy Osner · April 23, 2004 01:54 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.

Posted by Steve Carr · April 23, 2004 04:00 PM

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

Posted by Jeremy Osner · April 23, 2004 04:02 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.

Posted by dsquared · April 23, 2004 04:04 PM

Thanks — that’s what I wanted to know.

Posted by Jeremy Osner · April 23, 2004 04:09 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.

Posted by Scott Martens · April 23, 2004 04:10 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.

Posted by Scott Martens · April 23, 2004 04:10 PM

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

Posted by Scott Martens · April 23, 2004 04:12 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?

Posted by dave heasman · April 23, 2004 06:29 PM

The Alliance for Justice has launched a new website urging Justice Scalia to recuse himself from the Cheney energy case! Check it out: 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!

Posted by Natacha · April 23, 2004 07:27 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

Posted by Kilroy Was Here · April 23, 2004 10:47 PM
Followups

This discussion has been closed. Thanks to everyone who contributed.