Fuzzy pension math

 
Updated 11/13/2019 9:27 AM

I find it difficult to imagine how pooling the fire and police pension funds is a viable idea. Would you feel comfortable sharing your retirement and savings accounts with your neighbors? Perhaps if you were confident that you have much less money than most of them.

The primary arguments for pooling involves cost savings and better investment returns. If a given fund wants to save costs, there are numerous low-fee investment funds and investment platforms. As far as better investment returns, that is not something where size matters. An index fund with $1,000 and one with $100 million both obtain the same rate of return, net of fees.

                                                                                                                                                                                                                       
 

Since fees are a matter of choice, choose the lower fee. If the belief is that the larger fund managers can get better returns by more active management, then the proponents of pooling should provide some evidence of this. Alternatively, they might propose using only these gifted fund managers and utilizing separate accounts for each distinct pension fund.

Tom Nowak

Grayslake

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