US Social Security Reform Could Open Up Fund Industry
Byline: Pirkko Juntunen
US social security reform could have a big impact on the asset management industry as investment regulation changes are on the agenda.
The American Benefits Council, the US national trade association for private company pension funds, is urging President George W Bush's administration to allow diversification of social security investments beyond US Treasury securities in its plans to reform the current $730bn (E810bn) system.
The president's Commission to Strengthen Social Security is in the process of developing recommendations for an overall US social security reform and is also consulting various industry bodies for their views.
The council recommendations to the commission include gradual diversification of investments which will have the potential to increase performance. The council wants, however, to ensure that the parties responsible for investments would not be allowed to become involved in the running of the companies they invest in and also be entirely independent of government influence. Other recommendations include incentives for employers to continue providing defined benefit provisions and ensure that existing pension provision is not harmed in any way. Evaluating the impact on existing occupational schemes was one of the inclusions in the order from Bush to the commissions. In its interim report this is, however, not included and the council believes this should again be considered.
According to the council, the creation of individual accounts should only be considered if administration obstacles are resolved. Extensive education programmes for the general public are needed in order to ensure that it is understood that social security, in any form, is not a substitute for occupational or private pension contributions.
James Klein, council president, said: "To be truly successful at enhancing savings, Social Security reform must complement our proven employment-based retirement system and must be accompanied by significant education about the necessity of saving, to supplement revised social security benefits."
Collectively, the council members either sponsor directly or provide services to retirement, health and employee stock ownership plans that cover more than 100 million Americans. …