Financial Analysts journal
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As more and more observers are recognizing (and with increasing alarm), a major investment problem is coming our way: widespread retirement insecurity. It is one of the consequences of the major shift in corporate retirement plans from defined-benefit (DB) to defined-contribution (DC) plans. The issue is not limited to the United States but is a concern being raised today by regulators, companies, and plan participants around the world. Although most workers in the top one-third of economic affluence will be fine, for the lower two-thirds—particularly the bottom one-third—the problem is a serious threat. With the change to DC plans, investment and payout decisions shifted from experts at corporations to individual plan participants—most without experience or expertise in investments. Many of these people will be at risk of experiencing a seriously negative trifecta: being old, poor, and alone. The consequence could be to take us back to the early 1950s in social injustice—a problem we worked hard to put behind us in the United States. It does not need to happen. We can prevent this painful future if we act sensibly and soon. If we do not act, history will judge us harshly— as it should—because those of us in the investment profession can readily recognize the problem and its inevitable consequences. Pain and serious anguish lie in wait for millions of people if we do nothing. So, as professionals, we should raise the alarm with our corporate and government leaders.
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