Customer Reviews

Fundamentals of Private Pensions

5 star:		(2)
4 star:		(1)
3 star:		(1)
2 star:		(0)
1 star:		(0)

 

 

A good reference book for anyone connected with a pension or profit sharing arrangement. It is not a guide to IRAs, Keogh plans, SEPs, rather it focuses on traditional defined contribution and defined benefit plans. While this book seems written for more for budding actuaries, those wishing to study design alternatives or asset management will find this book provides a good background. I find two flaws with the book.

First is the lack of examples. While the book discusses full funding limitations, it does not show you an example calculation. While it tells you how to calculate the minimum liability, it does not show you an example of how to present it in the financial statements. This book is not a text book, but it would be very helpful to see some real examples in practice rather than only discussions about the rationale behind the method.

Second, the single chapter on pension accounting is weak. Issues not mentioned include accounting for minimum liability, disclosures under FAS 132, understanding the relationship between funding and expense, curtailments and other plan amendments, the interrelationships between the conflicting limitations of ERISA/IRC/GAAP, the effect of pension assumptions on the financial statements and the impact of FAS 87 for an over funded plan on the financial statements of the sponsor. The perspective focuses more on the reasons the accounting standards exist, not the strategy or day-to-day issues of how the pension affects the financial statements of the sponsor. If accounting is what you need, buy a current intermediate accounting book.

Very coplete study, covering almost all imaginable subjects, from actuarial maths to investment management to organisation and HR aspects of pension provision. This is not a manual, though. Get a simpler and less in detail book to get a general view of the topic, and then use "Fundamentals..." as reference.

Pension mavens have long recognized that Fundamentals of Private Pensions is one of the few
classics in the field, a work that no pension library should be without. Accordingly, it is a
pleasure to welcome the 9th edition, published under the auspices of the Pension Research
Council of the Wharton School, and featuring a dream team of authors: Dan M. McGill, Kyle
N. Brown, John J. Haley, Sylvester J. Schieber, and Mark J. Warshawsky.
As always, the book's coverage is comprehensive and includes an array of empirical
and statistical data in addition to thorough coverage of the laws and policies that shape
the American retirement system. The book provides good coverage of recent developments,
including the Pension Protection Act of 2006, the growth of hybrid plans and the (slow)
emergence of phased retirement. The book also includes a good chapter on the most problematic
issue arising from the trend towards defined contribution plans, namely the risk that
individuals will outlive their resources in retirement.
Although the pension laws have been amended frequently since the enactment of the
Employee Retirement Income Security Act of 1974 (ERISA), these changes have mainly
tinkered with the rules, not always for the better. For at least the last 15 years, pension scholars
have been advocating systemic changes. ERISA responded to problems and workplace conditions
of the 1960s: today's problems and conditions are very different.
The need for change has become more urgent as a result of the recent financial crises.
However, the Obama Administration faces major problems that must take priority over changing
the private pension rules including: two wars; reinvigorating the economy; the credit crisis ;
the health care system in general and Medicare and Medicaid in particular; and putting Social
Security on a firmer financial footing. Pension reform is controversial: will this Administration
or Congress have the time or the political will to address fundamental, long-term reform?
Despite all efforts by Congress, private sector pension coverage has hovered around 50%for
several decades, and the percentage with adequate coverage is far less than 50%. Recent
legislative initiatives have focused on encouraging individuals to save more for retirement: but
in the present environment that approach is unrealistic, particularly for the lower income
workers who are most at risk. Adequate retirement income requires mandates. There is a strong
argument for severing completely the link between health care coverage and employment, and
perhaps the same approach would, in the long run, improve our retirement system.
One of the great virtues of the book is that it collects and analyzes information from many
sources and many disciplines, and I am not aware of any other single-volume work with such
broad coverage. Nevertheless, I have a short wish list, probably idiosyncratic, of features that
I would like to see covered or covered in more detail, in future editions. The final chapter of the
present work discusses the future of pensions, and I suggest that this chapter could be expanded
significantly by delving into several unanswered questions.
First, despite some recent cutbacks by major employers, problems of pension coverage and
adequacy disproportionately affect part-time employees and employees of small employers.
Why is this the case and how can this problem be addressed? Second, it is clear that the rate
of contributions must be increased. The current tax incentives are both very expensive and
ineffective. What combination of carrots and sticks is best designed to achieve this goal?
Third, it is not enough to get money into the system: we must try to keep it in the system by
increasing portability and reducing pre-retirement leakage. Social Security is a good model: but
an enhancement of retirement security by increasing Social Security benefits does not appear at
all likely to happen. Fourth, the runaway cost of health care and the amount of waste in the
health care system directly reduce the level of retirement security, by reducing the amounts
available for contribution and by increasing the amount required in retirement.
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Fifth, the amount held in individual retirement accounts (primarily rollover IRAs) is now
greater than the amount held in private sector defined benefit plans or private sector defined
contribution plans, yet the rules governing IRAs have not evolved to reflect this. Sixth, we need
to develop a better framework for regulating investments by all types of retirement plans.
Finally, we need to develop better distribution alternatives for individuals with account-based
retirement savings. We should not expect every retiree to invest successfully and take appropriate
distributions over a period of up to 40 years, a period in which mental acuity is likely to
diminish.
The authors may legitimately claim that these topics are not part of the book they set out to
write. However, their inclusion would make an excellent book even better.
DAVID PRATT
Professor of Law, Albany Law School

Clear, comprehensive, well-organized and updated. Full of details and concepts. Excellent reference book. Probably lacking of accounting concepts. A must-have.