Keeping Income Secure

Sam Beard [letters, May 5] takes me to task for criticizing voluntary savings accounts funded by payroll tax reductions [Outlook, April 19]. But his argument is odd, as he first embraces my criticism that most workers will pocket any payroll tax cuts, rather than deposit them in personal accounts.

He then advocates mandatory savings plans but conveniently ignores published evidence on why such mandatory plans are a bad idea. Annual administrative costs for individually managed accounts would run one percent of funds on deposit, according to advocates of private accounts on the Social Security Advisory Council. Actual annual administrative costs in the United Kingdom have run as high as 2 percent of funds on deposit. Such annual administrative costs reduce pension accumulations over a normal working life by 25 to 35 percent, not 2 percent as Mr. Beard conjures up without attribution or explanation.

Public pension reserves, like private pension reserves, should be invested in a diversified portfolio of stocks and bonds. But there is no need to fritter away a large part of the income on needless administrative costs. Furthermore, individual accounts are vulnerable to fluctuations in asset prices. A worker retiring in 1975 under a pension tied to stock market returns would have received less than half as much per dollar of pension fund contribution as would a worker who retired just six years earlier. Three years of meteoric stock price increases should not obscure the risks that pensions linked directly to asset prices carry.

To ensure retirees, the disabled and survivors a secure income at the lowest possible cost, benefits should be tied to each worker’s earnings, and reserves should be invested so as to minimize administrative costs. There is no good reason to divert payroll taxes into private savings accounts, voluntary or mandatory, as Mr. Beard advocates, because doing so will force needless cuts in the basic income protection of American workers and subject their basic economic security to the caprice of financial markets.