Re: Defined Contribution Plans

[Kendall Brown <mkb7w@virginia.edu>]

I, too, have experience with the defined plans as Rip described.  Everyone
in my office, all ranks and sizes, were able to choose from a variety of
options and had a long conference with the investment firm's rep to make
decisions about what they wanted.  Everyone seems to have done very well
over the years, and it has proven to be a very satisfactory arrangement for
everyone, regardless of income level, sophistication with investments,  etc.
In fact, the money I made through those investments has helped me immensely
here at law school.  At the end of the day, people are allowed some control
over their futures, while at the same time provided excellent protection and
guidance which seems to answer a multitude of dilemmas concerning pension
plans.  Whoever thought of this was a genius.
-----Original Message-----
From: Rip Verkerke <ripv@virginia.edu>
To: Employment Law <law-emplaw@virginia.edu>
Date: Wednesday, March 22, 2000 9:38 AM
Subject: Defined Contribution Plans


>A student asked:
>
>I have kind of a basic question about pension plans.  If
>the plan is defined contribution, who controls it?  It
>seemed like you were alluding to some kind of employee
>control in that they can decide how to weigh risks and
>potential returns.  How much control does the employee
>have? It seems like many employees would be ill-equipped to
>fully manage their pension portfolios, but also (ever the
>liberal) I like the idea of them having options.
>
>I replied:
>
>Employees choose how to allocate their defined contributions among
>investment funds selected by the employer.  The employer contracts with one
>or more investment firms (say Fidelity, Vanguard, or TIAA-CREF) to provide
>employees with a menu of investment options.  The firm typically offers a
>range of mutual funds from the very safe (with low returns) to the riskier
>"aggressive" funds (with comparatively high returns).  Employees can get
>advice from the investment firm about what to choose, but the final
decision
>is their own.
>
>As a participant in such a plan, I can testify that the informational
>demands on participants are not all that great.  Basically, you should
>choose an "aggressive" strategy when you are young and then slowly shift
>into safer investments as you approach retirement age.  Of course, the nice
>thing about mutual funds is that you don't really have to "manage" a
complex
>portfolio at all.
>
>I hope that is helpful and would welcome further comment or discussion of
>these issues.
>
>Warm regards,
>
>Rip