The Trouble with Pensions: Toward an Alternative Public Policy to Support Retirement

Yeva Nersisyan and L. Randall Wray

Economics Public Policy Brief Archive from Levy Economics Institute

Abstract: Pension funds have taken a big hit during the current financial crisis, with losses in the trillions of dollars. In addition, both private and public pensions are experiencing significant funding shortfalls, as is the government-run Pension Benefit Guaranty Corporation, which insures the defined-benefit pension plans of private American companies. Yeva Nersisyan and Senior Scholar L. Randall Wray argue that the employment-based pension system is highly problematic, since the strategy for managing pension funds leads to excessive cost and risk in an effort to achieve above-average returns. The average fund manager, however, will only achieve the risk-free return. The authors therefore advocate expanding Social Security and encouraging private and public pensions to invest only in safe (risk-free) Treasury bonds--which, on average, will beat the net returns on risky assets.

Date: 2010-01
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