Professor Teresa Ghilarducci, an economist from the University of Notre Dame, called for an increased transparency of fee/services by requiring employee/worker representatives on pension boards, reducing the amount of company stock investment in these programs and directing the Pension Benefit Guaranty Corporation (PBGC), which currently insures pension plans to investigate ways to reduce risks in defined contribution plans.
During the discussion at the Enron-related hearings at the House Committee on Education and the Workforce, several Committee members returned with some interest to Ghilarducci’s remarks – including:
- The notion that since 401(k) programs were ‘subsidized’ by taxpayers due to the deferral of taxes on those contributions, Congress had a right – if not an obligation – to step in. Representative Major Owens (D-New York) referenced that obligation ‘despite the insistence of some that this money (401(k)) is corporate money, and that government should keep their hands off. But the tax subsidy means that we are all paying for it.’
- The benefits of employee representation on pension boards, which is much more common in other industrialized nations than in the US. She described our system as ‘inherently risky’ – and the position of employers in our current pension structure as ‘inherently conflicted.’
In her prepared remarks, she expressed concerns that the coverage rates for pension coverage have declined since 1978 – and noted that employer expenditures on such programs have also declined. She attributed this to a shift from defined benefit programs to defined contribution plans, which she said cost employers less money.
Ghilarducci noted that workers want control – but Congress can’t fix the ‘fatal flaw’ that individuals can’t control when they will need the money. She also pointed out that people are ‘bad investors’ – ‘optimistic about our success, and our employer’s success – and we usually pick instant gratification over deferred gratification. We buy high, sell low, and trade too often’ she said. ‘Education can only go so far to overcome our human nature.’
She further noted that the impact of administrative fees on pension accumulations was ‘underappreciated’. She noted that having all the ‘bells and whistles’ can erode the value of accumulated assets by 20-40% in defined contribution programs. ‘If employers had to pay for it – then there would be more accountability,’ she said.