Derived from the statement “Strengthening Worker Retirement Security” (pdf), of John C. Bogle, before the Committee on Education and Labor, U.S. House of Representatives, Washington, DC on February 24, 2009 -
Our nation’s system of retirement security is imperiled, headed for a serious train wreck. That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system. Federal support—which, in today’s world, is already being tapped at unprecedented levels—seems to be the only short-term remedy.
But long-term reforms in our retirement funding system, if only we have the wisdom and courage to implement them, can move us to a better path toward retirement security for the nation’s workers.
What does Mr. Bogle consider an ideal retirement plan system?
- Social Security would remain in its present form, offering basic retirement security for our citizens at minimum investment risk. (However, policymakers must promptly deal with its longer-run deficits.)
- For those who have the financial ability to save for retirement, there would be a single defined-contribution structure, dominated by low-cost—even mutual—providers, inevitably focused on all-market index funds investing for the long term, and overseen by a newly-created Federal Retirement Board that would establish sound principles of asset allocation and diversification in order to assure appropriate investment risk for each participant.
- Longevity risk would be mitigated by creating simple low-cost annuities as a mandatory offering in these plans, with some portion of each participant’s balance going into this option upon retirement. (Participants should have the ability to opt-out of this alternative.)
- We should extend the existing ERISA requirement that plan sponsors meet a standard of fiduciary duty to encompass plan providers as well. (In fact, I believe that a federal standard of fiduciary duty for all money managers should also be enacted.)
Also according to St. Jack – “It may not be—indeed, it is not—a system free of flaws. But it is a radical improvement, borne of common sense and elemental arithmetic, over the present system, which is driven by the interest of Wall Street rather than Main Street.
And, with the independent Federal Retirement Board, we have the means to correct flaws that may develop over time, and assure that the interests of workers and their retirement security remain paramount.”
Thank you for speaking out in the interests of the average American investor Mr. Bogle. Let’s hope that our new administration shows such wisdom and courage, sticks with it’s plans for “change”, and implements your ideas.
Hat tip to Taylor Larimore, moderator of the Bogleheads Forum, for pointing out Mr. Bogle’s recent testimony before Congress.
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