Home > Uncategorized > Pension funds and the search for alternative assets

Pension funds and the search for alternative assets

from Maria Alejandra Madi

A decade after the 2008 global crisis, some key trends can be highlighted: a) There has been a shift to defined contribution (DC) pension plans, b) The increasing role of alternative assets, such as private equity, among pension assets.

Many governments in OCDE countries have been committed to structural reforms in labour markets and pension plans. As a result, the current era of austerity has deep impacts on the diversification of types of pension plans. According to a 2018 OCDE  report, in a mandatory pension plan, a) employers setup a plan for their employees, b) employees contribute to a state funded pension scheme or c) employees contribute a private pension fund of their choice.  In a quasi-mandatory, employers need to setup a pension plan as a result of labour agreements. In some OCDE countries, there are automatic enrolment programs at the national level where employees have the option to opt out of the plan under certain conditions.

In this setting, a recent PwC report warned that government-incentivized or government-mandated retirement plans turns out to privilege the use of defined contribution (DC) pension plans -such as the United States.  read more

  1. Grayce
    January 13, 2019 at 12:58 am

    Pension plans are a form of deferred compensation, used by early corporations to keep cash flowing while they invested in themselves and their future. The retired person, who helped with corporate growth, collected when it mattered, and a balance was achieved. Now, many mature corporations are cutting back at the awful juncture that CEOs etc. have salaries at 100 times the salary the position paid when the pensions were set up. “Risky” the risk managers say. “Declare future costs” the FAS 106 regulations say. So, the defined contribution was invented. It makes future costs predictable. The problem is, it does not make the same balance. If it is known, then it might as well be added to paychecks.
    This same shifting of risk has happened in retiree health plans (both are ERISA regulated). The vesting of a certain coverage has taken a back seat to defined contribution health, and the coverage affordable with that contribution gets smaller and smaller.
    Not everyone will see the truth of this, since CFOs have a belief in numbers over warm bodies. As well, the corporation can backtrack on any promise and outlast the retiree in courts of justice.

  2. January 14, 2019 at 10:41 am

    Why can’t a worker have both? A defined benefits pension provided entirely by the employer that provides a known and fixed (adjusted for inflation) annual amount for the worker’s entire life span. The pension would be guaranteed by the federal government. And a defined contributions plan (offered at several levels of contributions) in which 50% of contributions come from the employer and 50% from the workers. The income from this plan would continue till saved funds are exhausted. Together these provide a basic and non-ending income for the worker, while providing supplemental funds to help in the purchase of big items.

    • Craig
      January 17, 2019 at 8:14 pm

      They COULD have a defined benefit “pension” for their entire adult life with a $1000/mo. universal dividend that with a 50% discount at retail sale enabled them to purchase $2000/mo worth of goods and services. Furthermore, if we implemented a non-profit publicly administered national banking system and extended the 50% discount/rebate policy to the point of note creation they could purchase big ticket items like a $300k house reduced to $150 k at retail sale….to $75 k at 0% interest at note signing…because a non-profit banking system does not need to make a profit and creates money , like we do now, ex nihilo, so they can just reduce it by half or whatever percentage is decided upon….and no one suffers and everyone benefits because the system now serves man instead of man having to slavishly serve the system. Nice huh?

  3. January 15, 2019 at 4:25 am

    Grace, a few years ago the USD$ value of Mark Zuckerburg’s salary was excluded from the averaging of CEO compensation. Otherwise, it would have shot the ratio of CEO to base level salary up to over 3000:1 from something over 300:1. Prof. R. Reich correctly diagnosed the current decline of US cultural evolution as proportional to that gross increase of disparity & dysequity since the 1950s &’60s. I concur. Reich reminds us that most business owners in the USA were satisfied with no more than 10 or 12 times the compensation of their base level employees. They were also satisfied with paying for the development of our national culture and infrastructure. I know that to be true because I lived though the transistion. My parents were successful proto-yuppies who provided exemplary living proof. Well into the ’60s, US tax rates were over 90% for the wealthiest citizens. What happened? Why has the situation deteriorated so severely? Dr. D. Suzuki correctly diagnosed it as symptomatic of ethicide. As early as 2007 I diagnosed it as ecocidal mania aggravated by pandemic spiritual illness (re: my paper on Global Emergency Medicine). To put it plainly, the American culture that became the envy & hope of the world became a culture of corruption, cowardice and normative self-delusion. Of course, part of the problem was aggravated by systematic disinformation and dyseducation, especially in the teaching of plutonomics thinly veiled as economics.

    • January 17, 2019 at 10:42 am

      Michael, I’m more down to earth. All these big words frighten me. How did the situation you describe happen? Humans are in most instances corrupt. At least that’s what the founders of the USA believed. So, they included dozens of safeguards against corruption in the papers and structures of the new nation. But these alone can’t and don’t stop corruption. For example, supporters of the wage programs put in place as part of the New Deal went to FDR with their wish list. After hearing them out, FDR commented to them “now go and make me do this.” He knew that only people in mass can stop corruption. People voted in the millions for FDR and voiced their support in all sorts of settings. Till it was impossible for the opponents of the New Deal – the same ones as today – to gain any foothold in killing it. That kind of “make me do it” has been absent from the USA since the 1970s. It should have arisen with Reagan in the 1980s. It didn’t. With Bill Clinton in the 1990s. It didn’t. With George W. Bush in early 2000s. It didn’t. Now in 2018 it seems to be back. It’s first target must be Donald Trump and all his cronies. This is how democracy works.

  4. Helen Sakho
    January 16, 2019 at 2:38 am

    With comments such as all these, one does begin to hope that one has not wasted one’s life learning and then de-learning the useless theories and models that Economists put one through as teachers.

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