In his latest column, George Will provides a clear analysis of the key indulgence leading to the insolvency of states like Illinois, New York and California.
Many states are broke and many more on the brink because public sector pension plans have raided state coffers and carried on spending well after those coffers were empty. Now these same public sector pillagers of tax payer dollars have turned their gaze to the federal government, and approach with hands out, like so many pitiful little Oliver Twists.
What Mr. Will fails to recognize however, is the degree to which mutual funds represent an impassable obstacle on his proposed path back to fiscal sanity at the state level.
Will is right to point out that, unlike the penniless states lining up for handouts, Oliver Twist did not choose his fate. The states are in the state they’re in because they chose to increase public pensions to indecent levels at disgraceful rates. They should be ashamed. Instead, the pampered classes that pilfered their state treasuries cry, “Bail us out!” It’s enough to make you sick.
Will than goes on to say that the remedy to this epic statist selfishness is in a bill written by a Congressman. Hmm.
The upshot of the bill is to mandate the transparency that will push the public sector to abandon traditional pensions in favor of 401(k)s — just as the market forced the private sector to do quite some time ago, (there are still exceptions, but they are rare and soon to be extinct).
One problem: The mutual fund industry has been raiding the coffers of the retirement plans they manage. Remind you of anyone? Private sector 401(k)s lost over 2 trillion dollars just a few years ago. But that’s not the real problem, as anyone in a moral and sensible 401(k) will tell you.
The problem is that most defined contribution retirement plans are run by used car salesmen on steroids, who charge the highest fees legally possible, place participants in mutual funds that charge the highest commissions and encourage movement from one fund to the other in order to enrich themselves.
Mr. Will is quick to criticize the speck of naiveté in his fellow pundit’s eye in matters of international affairs; surprisingly, he seems unaware of the log in his own in matters of responsible retirement planning.
The remedy that Mr. Will proposes, along with the bill written by the Senator he finds so clever, would do more to hinder than help unless or until we develop a universal 401(k) plan that is based on passive investing, low fees and index funds.
Ironically, the best model out there is the one put in place for federal employees, after much of the same criticism that is now aimed at the states.
Filed under: Uncategorized Tagged: | bail out, defined contribution, federal government, george will, mutual funds, pension plans
