Bogle tells Congress: Tighten retirement plans, delay Social Security
Tuesday hearing
John Bogle, founder of Vanguard Group, the $3 trillion-asset, Malvern-based No. 1 company in the mutual-fund business, is due in Washington Tuesday morning to lecture the U.S. Senate Finance Committee about what ought to be done to prevent retired Americans from ending up in their kids' closets and garages and the streets, now that most big companies no longer offer guaranteed pensions.
Bogle's office passed along a copy of his prescription. Summary:
- Save Social Security by "gradual" delays in the eligibile retirement age until 69; boost benefits based on inflation, not wage increases; extend the Social Security tax to higher wages; limit payouts to rich retirees.
- Pressure old-fashioned guaranteed pension plans still more, by dropping return targets to around 5%, forcing employers and unions to make "disruptive and painful" additional payments if they want to keep these plans.
- Make it harder for IRA and 401(k) savers, who mostly "lack the knowledge and understanding of the principles of sound investing," to cash out or borrow their savings or to transfer it to "Wall Street's salesmen" once it's invested;
- Push the SEC and Labor Department to force plan managers to tougher fiduciary standards (which could end up favoring low fees and index funds, like Vanguard's.)
Bogle praised the federal Thrift Savings Plan, which offers low-fee index funds, as a model for other retirement investors. He also praises Vanguard's own Retirement Saving Plan, which he says contributes 10% of wage compensation, 5.7% of compensation above the Social Security tax base, and a match for the first 4% of workers' voluntary contributions.
He predicts his testimony will provoke "enormous resistance from lobbyists for mutual fund managers and industry associations," and mentions by name the Investment Companies' Institute -- the mutual fund industry group -- whose chief economist, Brian Reid PhD., is scheduled to testify right after Bogle. Bogle adds that the mutual fund industry has "lost its way," and would do better to structure itself like Vanguard, with its index funds and low fees.
(Vanguard's structure has lately come under fire from an unexpected source: its own former Associate Counsel David Danon, who filed a whistleblower lawsuit that became public in July alleging the company has used its unusual corporate structure to "illegally" avoid incurring federal income taxes; Vanguard denies any wrongdoing and is contesting the suit. A scheduled hearing on a New York State lawsuit Danon filed against Vanguard has been postponed from last Friday to an as-yet unscheduled date, says Danon's new lawyer, Stephen Sorenson, a Delaware County native who was until last year a partner at the corporate law firm Williams & Connolly and is now a partner at California-based Thomas, Alexander & Forrester, which represents plaintiffs in cases against financial corporations.)
