Dear Mr. Berko: Several of my well-read colleagues (we're all engineers) believe that the Department of Labor wants to merge private individual retirement accounts and 401(k) accounts with our Social Security program to cover the huge shortfall. What are your thoughts on this? And please settle a bet between me and my wife, who can be a know-it-all. Does the stock market do better under a Republican president or a Democratic president? — GS, Santa Barbara, Calif.
Dear GS: Good luck!
If we go back 71 years, to 1945, the obvious answer is that the market does much better under a Democratic president than it does under a Republican president. If you were keeping tabs during the past three score and 11 years (Standard & Poor's was), the market gained nearly 50 percent more under a Democratic president than under a Republican president. Though, to some voters, this is heretical and offensive.
Sam Stovall, chairman of the S&P Investment Policy Committee, says the Democrats are way ahead of the game. Stovall, who joined S&P in 1989, notes that since 1945, the average annual S&P gain under a Republican presidential term has been 6.7 percent. The average annual S&P gain under a Democratic president has been 9.7 percent. That's almost 50 percent better. According to the estimable Stovall, the only two presidents with negative average annual returns (both Republicans) during their office terms were Richard Nixon (minus 5.1 percent) and George Bush the Younger (minus 4.6 percent). That's the Gospel according to Merrill Lynch, Pierce, Fenner and Beane.
I don't know how the Department of Labor got into the investment business, but this may be a precursor to eventual government control of our retirement accounts. Pension plans hold the largest source of investment capital in the world. So recently, the three-member White House Council of Economic Advisers, an agency within the Executive Office of the President, unilaterally decided that biased investment advice drains $17 billion yearly from retirement accounts (that number was pulled from a dark place) in excessive fees and commissions. So those economic advisers, along with the DOL, fabricated a silly patchwork of regulations they think will improve investors' returns. But there won't be a merger of private retirement accounts with Social Security.
You may be thinking of the Left Coast, where most progressive legislation commences. Last March, the California Legislature had the green light to "auto-enroll" workers in IRAs and 401(k) accounts. This new retirement money will mitigate the $150 billion shortfall in the California Public Employees' Retirement System, which has been poorly managed by idiots and cretins.
Now it appears Treasury Secretary Jack Lew (a closet socialist) and Sen. Elizabeth Warren (an out-of-the-closet socialist) will get their way. Citing mismanagement, excessive commissions and conflicting advice (all too true), they want to push Americans out of private investment accounts and into state-run plans, a good chunk of which would be invested in safe government bonds producing low returns. According to The Pew Charitable Trusts, state-run retirement systems have over $1 trillion in unfunded liabilities, while other estimates are as high as $4.7 trillion. So for states such as Illinois, Ohio, Kentucky, Massachusetts, Florida and California, with massive unfunded pension liabilities, this political solution to an economic problem is a Golconda. And as new IRAs and 401(k) accounts roll into Sacramento, the legislatures will be slavering. Because the California Legislature is almost as crooked as the Florida Legislature, that new money will eventually find its way into their pockets.
America's underfunded state retirement plans are a ticking time bomb, and states across the nation are facing a crisis of major proportions. Alaska is $4 billion short. Colorado is $23 billion short. Kansas is $9 billion short. Louisiana is $18.5 billion short. And Florida and California are in worse shape. This is where Jack Lew, Elizabeth Warren and the White House Council of (Three) Economic Advisers screwed the pooch. Misfeasance and malfeasance of state-run plans is a more serious problem than the stinky advice given to private IRA and 401(k) investors.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.