[Author’s Name]
[Institution’s Name]
Essay on Public Pension Problems
There are practical and political reasons that the reform of pension investment practices is urgently needed. U.S. capital markets are increasingly short term and speculative, and pension funds increasingly contribute to this bias. In 1992, pension funds became, for the first time, a larger source of finance than commercial banks. At the same time, pension regulators ignore this role of the pension funds and the potential for pension funds to invest long term, a goal that is appropriate because pension funds have naturally long-term and predictable liabilities workers' future pension benefits. The regulators also ignore workers' needs for pension funds to be invested in ways that take into account their needs as participants, not just as future recipients of a pension check.
To be sure, pension fund participants need their pensions to be wisely invested, but they also need continued employment to accrue pension credits. Pension investments can both earn a market rate of return and contribute to economic revitalization. In addition, taxpayers should demand more from pension fund investments, because without government tax favoritism, most funds would not exist. Tax exemptions for pension fund earnings and contributions are the largest tax expenditure (loss of tax revenue) in the federal budget $51 billion in 1992. Pension funds will play a central role in financing the economic future.
With more than $4 trillion in assets, pension funds represent the largest source of savings in the economy, accounting for 74 percent of net individual savings during the first three quarters of 1992. Pension funds currently own about one-third of all corporate equities and about 40 percent of corporate bonds. (Anna M. Rappaport, Sylvester J. Schieber, 1993)No serious U.S. industrial policy can ignore the impact of pension fund investment decisions: pension funds hold almost one-third of the total financial assets in our economy......
