Q Do you think there should be a national retirement policy and, if so, what should it be?.
A It should be very largely voluntary. The difficulty with ERISA [The Employee Retirement Income Security Act of 1974] is that so many very sexy little programs have been added on that are not retirement income programs, but tax-aided savings programs. My view is that if it's a retirement income program, it shouldn't be the same as a savings account. It should be something to which you wouldn't have access except at retirement.
Tax incentives are so widespread that they've almost lost their meaning. And as we well know, our tax incentives have resulted in an untenable budget deficit.
Q What changes would you make in ERISA?
A I hope I will live to see the day when there is some institution in the executive branch that is responsible for retirement income. And I hope to see a joint congressional committee on retirement income. The difficulty today is that everybody's responsible for retirement and nobody's responsible. It's inevitable that there is a turf fight among the Department of Labor, Internal Revenue Service and Social Security [which all deal with retirement] because that's the nature of a bureaucracy. Some of us are going to have to care about retirement funds and make it a priority issue.
Q At one time pension funds were underfunded, but recently the problem is the opposite, overfunding. Consequently, last year companies terminated at least 102 pension plans and recovered $1.2 billion in assets. Has this situation gone too far?
A If someone had said 10 years ago that the biggest problem would be overfunding, people would have laughed. But I don't think we will be able to smooth out the cycles [of over- and under-funding] because the pension system is really a function of the economy.
Q Defined contribution plans, in which the employer puts in a given sum but does not guarantee how much will be there on retirement, have become increasingly popular. Is this desirable?
A This is probably the most difficult policy question today. Defined contribution plans are very good when the market is going up. But when the market's going down, the monies that you had set aside for your retirement all of a sudden aren't there. My thinking is that the most important social policy is to assure that, when you retire, the money will be there. And in the defined contribution plan there is no such assurance.
So while I like on the one hand the notion of people being responsible for their own destiny, on the other I contrast that with the lack of assurance that the company will make up the shortfall. We aren't talking about making people rich. We're talking about trying to have the highest level of confidence that people at retirement will have an adequate income.
Q What is your opinion of pension funds making social investments, those that are socially "useful," if they provide the same financial return?
A The law is very clear that the consideration is uniquely for the beneficiaries.
Q Even when not reinvesting pension funds in a troubled industry could affect the continued existence of that industry?
A Yes. The whole notion is that a pension should be as free as possible from the economic fate of the employer. People are already running a risk in their lives by being paid by their employer. So Congress limited the percentage of assets of a retirement fund that can be in an employer's securities to 10 percent. Different considerations obtain for profit-sharing plans.
Q Pension managers have had a rather mediocre investment record in the past decade. Do you think they should be more aggressive?
A ERISA changed the conditions under which money managers work. Now a portion of the portfolio can be invested in higher-risk items [without the manager risking liability for a single item]. Unfortunately, there is very little incentive for a trustee to take a chance. One of the real drawbacks is that trustees can't get paid incentive compensation.
Q Pension funds have almost $1 trillion invested. Because of their enormous size, they are in a position to influence corporate policy. How great a factor are pension funds in takeover situations and is this in the best interest of the economy?
A Many people have stated that a trustee has no choice but to tender his stock to the highest bidder. Because pension funds own over half of so many U.S. companies, this really means there is a "for sale" sign over their doors. I fear the implications of such violent changes in our economic structure.
Q You have advocated an inflation-indexed Treasury bond as an ideal investment for pension funds. What effect would this have on government funding?
A The ideal investment for pension funds combines a high level of security, a guaranteed income level and some mechanism for insuring that purchasing power is maintained. An indexed Treasury bond, paying 3 percent above inflation, is what pensioners require. Such bonds do, in fact, exist in England.
By assuming the risk of any future increases in inflation, the government would be able to lower the current interest rate on bonds from about 11.5 percent to 7 percent, representing a 3 percent [age-point] return over 4 percent inflation. If the government instead of the markets took the risk, you can imagine the enormous savings that would eventually result from financing even a portion of our national debt now exceeding $1 trillion on a current basis.
Q You resigned after little more than a year. During your tenure, the post was upgraded so that you reported directly to Secretary Raymond Donovan. Did his absence or preoccupation with personal matters impact your effectiveness?
A Donovan's absence didn't impact it at all . . . I said when I took the job, I'd do it for a year.