Investment Rules:
Any established and profitable Financial Institution will be able to offer a single Social Security Retirement Program. Every participating institution will use the same general plan to provide the benefit levels established by the Social Security Administration in pretty much the same manner as they are now. Each approved entity will establish one segregated Trust Fund that will be allocated at least 75% to Fixed Income Securities of various types, but of only Investment Grade Quality. Only pure securities (no zero coupon, hedged, or gimmicked varietals) are eligible for inclusion. The remaining 25% may be invested only in Investment Grade Value Stocks (including ADRs, and managed, non-index, CEFs…both of appropriate quality and income potential). In other words, a very conservatively managed (100% immediately vested) Group Pension Plan (with a named manager, not a committee). One manager, with appropriate research and administrative staff, backed up by assistant managers, a dedicated trading operation, etc. Researchers will be looking for Investment Grade Securities, not the next series of high risk and high media attention IPOs. (The SSRIA is another alternative.)
Asset allocation is determined using the Cost Basis of the securities in the fund. [Failure to do this is what makes defined benefit plans so unpredictable and expensive for corporations, particularly those with Cash Out benefits. Here we are dealing with a total contribution amount and a monthly benefit amount. There is no Market Value number entitlement involved. The fund generates the income needed for the retirees. Income generation is king. Market Value is not particularly relevant in securities where quality and income is maintained.]
There is no (we can predict the future) allocation to Cash or to other artificial product orientated classifications of capitalization, global presence, sector analytics, etc. (other than a reserve for the next three to five months of benefits). Managers are expected to operate within acceptable diversification standards within both the fixed income and equity asset allocations. This is not new. It is an old fashioned method that has always worked to provide retirement benefits. It still does. No two funds will be identical on the inside, but they all should be able to get the job done. At the SSRP, Income is Job One!
Why “One Size Fits All” is Acceptable Here:
Yes, this is entirely different from my normal Investment Management methodology. I despise mass-market investment products of all kinds; I hate the fact that today’s financial professionals know little about investing in individual securities, and I’ve written volumes documenting how the Financial Institutions have created this environment for their own bottom line benefit with no concern for the individual investor.
But this situation is totally different from the management of an individual’s investment program. Every participant actually makes the same, formula required, contribution to the plan, and each anticipates receipt of a pre-determined monthly dollar amount, an amount that will vary only with the amount deposited and the age retirement is selected. It may even be possible to specify a minimum monthly amount for every participant.
This is a 'melting pot' plan. Rich or poor, executive or laborer, you get a supplemental income based on the same rules and requirements. And rich or poor, you will be expected and encouraged to contribute to your own, self directed IRA program.
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Social Security Goodbye Part 4 <--
