REMARKS OF

J. CARTER BEESE, JR., COMMISSIONER*U.S. SECURITIES AND EXCHANGE COMMISSION

TEACH ME NOW, OR PAY ME LATER

BEFORE THE

CALLAN INVESTMENTS INSTITUTETHIRTEENTH ANNUAL NATIONAL CONFERENCE

SAN FRANCISCO, CALIFORNIAFEBRUARY 3, 1993

The views expressed herein are those of Commissioner Beese and do not necessarilyrepresent those of the Commission. other Cornrrussroners. or the staff.

U.S. Secunties and Exchange Commission450 Fifrh Street, "!I/.1\'.

washington, D. C. 20549

TEACH ME NOW, OR PAY ME LATER

INTRODUCTION

During the presidential campaign, James Carville, PresidentClinton's chief strategist, kept a sign on the wall behind hisdesk. That now-famous sign read "IT'S THE ECONOMY, STUPID!"This slogan was designed, of course, to keep the campaign focusedon the number one concern of Americans -- the economy. Indeed,the economy was on the top of voters' minds. But I believe thatthe election was influenced not so much by the economicindicators of September, October, and November, or even thecyclical ups and downs of the past four years. I believe thatthe final vote reflects a much deeper concern -- a fear overlong-term economic prospects.

Many Americans are getting a sinking feeling -- the feelingthat they will not live as well as their parents. Many fear thattheir standard of living is declining, and maybe decliningpermanently. Certainly the focus on ever higher health carecosts and the now omnipresent deficit are part of these longerterm fears. The traditional path to the American Dream --working hard, earning, and saving -- a path taken by our parentsand their parents before them, no longer seems enough. The Dream-- to give our children a better life, and in our golden years,live on the fruits of our hard work -- seems at times, indeed,just a dream.

This theme -- that the American Dream is crumbling -- hasbeen echoed by hundreds of headlines in newspapers across thecountry. The huge and structural federal deficit continues tocast doubts on the federal government's ability to keep its manyfuture promises -- be they direct promises or contingent "safety-net" promises. During the past few days, Washington has beenbuzzing over proposals to reduce the deficit. One suggestedmeasure is limiting cost-of-living increases for Social Securityrecipients and retired government workers. There is talk of newtaxes on pension and health care benefits. There is also talk ofraising the retirement age for social security from 65 to 67 thisyear. ~/ This, of course, would mean that anyone retiring beforeage 67 would receive reduced monthly income.

Speaking on a talk show this past weekend, Senator DanielPatrick Moynihan reminded us that future retirees ~ill face a ne~world even without any further congressional action to change thecurrent social security scheme. According to Senator Moynihan,starting this year, social security recipients will receive less

~/ This proposal would accelerate the change passed by Congressin 1983 that raised the retirement age froIT.65 to 67 beginningearly next century.

in benefits than they pay in contributions. This compares withten years ago when social security recipients could expect toreceive roughly two and a half times what they paid in. AsSenator Moynihan noted, sooner or later, people are going tostart catching on to this.

But if social security won't pay our bills during ourgolden years, we still have our pension funds -- don't we? Well,maybe. Congressional hearings began yesterday concerning thewidely pUblicized problems at the Pension Benefit GuaranteeCorporation ("PBGC"), the government agency that's responsiblefor insuring the retirement benefits of 40 million Americans.Several weeks ago the PBGe announced that it may face seriousfinancial problems in the future. Representative J.J. Pickle,who will chair one of the hearings, has warned: "Unless Congressand the Administration act now, these problems will worsen, andthis country's pension-guarantee program will become the nextsavings and loan bailout." 2:../

The reason for this alarmist rhetoric? In 1991, the PBGC'sprojected shortfall to cover currently underfunded pension plansincreased to more than $50 billion, a jump of over 70 percent inthe past two years. ~/

So who will finance the baby boomers' retirement? We can't,and shouldn't, rely solely on the government. After all, socialsecurity was created as a safety net -- not as the sole source ofpeople's retirement income. Perhaps we can count on the privatesector. Unfortunately, yesterday's paternalistic corporateemployer is running headlong into the reality of today's economy.Two days ago GM announced it was taking a $20.8 billionaccounting charge to meet new accounting standards requiringcorporations to take current charges for the future financialpromises that they make to their employees. And companies suchas Chrysler, Westinghouse, Bethlehem Steel, and Uniroyal-Goodrichare the ones reported by the PBGC to have the largest underfundedpension plans.

What's more, dozens of companies have trimmed or terminatedthe health benefits of thousands of their retired employees.Last Sunday, the business section of the New York Times had afront-page chart entitled "Goodbye to Benefits." The chartillustrated the dwindling number of medium-to-Iarge sizecompanies that still offer pension and health benefits to

~/ David A. Vise, In Pursuit of Pension Solutions, The WashingtonPost, February 2, 1993,at Dl.

~I Jeff Gerth, u.s. Pension Agency in Deep Trouble. EconomistsWarn, N.Y. Times, December 20, 1992, at AI.

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employees. ~/ This trend is bound to continue with theimplementation of FAS 106, the new accounting rule that forced GMand many more co~panies to decrease their earnings by an amountequal to the estlmated future cost of providing health benefitsto their retirees.

Most baby boomers have grown-up in a world where theyassumed that their promised benefits and adequate retirementfunds would be waiting for them at the end of their workingyears. Now, many of them are beginning to realize that the sceneof an idyllic afternoon spent fishing, confident knowing that anample retirement check is in the mail, might be a thing of thepast.

And unfortunately, the sad truth is, that for many babyboomers, it is.

That's because for a growing number of American workers,their golden years are no longer going to be characterized by agold watch and a monthly pension check drawn from a corporatepension plan. Instead of enrolling employees automatically indefined-benefit plans, many corporations are switching tovoluntary, defined-contribution plans -- such as profit sharingor 401(k) plans -- which can be cheaper to operate and helpemployees fund their own retirement by building and managingtheir own investment portfolios.

Regrettably, many employees covered by these defined-contribution plans are not earning passing grades in planning fortheir retirement. They either begin participating too late, oreven worse, not at all. And those that do participate too oftentend to pick investments destined to fund their retirement needsinadequately. Their choice of investments is not terriblysurprising. When you shift from defined-benefit to defined-contribution plans, you shift the responsibility for makinginvestment decisions from seasoned professionals to individualswho often are ill-equipped to make these decisions. In fact, ifwe take a look at how the assets of defined-contribution plansare invested, you start to wonder if, for the next generation ofAmericans, the sequel to the movie "On Golden Pond," might wellbe called "On Shallow Pond."

But while the plot to this gloomy story is currently beingwritten, we do have time to re-write the ending. The story ofthe next decade need not be written as a time when the reservoirof America's retirement savings were depleted by broken promises,wasted opportunities and poor investment decisions. Instead, ifemployers and plan sponsors take up the responsibility to provide

~/ Louis Uchitelle, Stanching the Loss of Good Jobs, N.Y. Times,January 31, 1993, at Fl.

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to employees the information and education they need to plantheir retirement suitably, the final installment of the Americandream a leisurely and financially secure retirement -- willstill be within the grasp of all working Americans.

DEFINED-CONTRIBUTION PLANSFor a growing number of American workers, the key to a

financially secure retirement will be the successful managementof their defined-contribution plan. According to statisticsprovided by the Employee Benefit Research Institute, as little as10 years ago, there were only 12 million American workersparticipating in defined-contribution plans. Today, there are inexcess of 40 million employees using them. And, according to theCallan Investment Institute, 84 percent of all employers nowoffer an employee-directed 401(k) plan.

Defined-contribution plans do offer both employees andemployers tremendous advantages. For employees, the portabilityof these plans fits the changing demographics of today'sworkforce, where the average employee is expected to hold four tosix jobs during a career. Moreover, because the employee bearsthe entire investment risk of his retirement portfolio, anyexcessive returns generated go to his pocket, not the corporatetreasury. Hostile takeover bids using overfunded corporatepension plans may have been common in the 1980's, but foremployees, there is no such thinq as an overfunded individualretirement plan.

The lure of defined-contribution plans for many corporationsis that they remove the uncertainties and headaches associatedwith funding a long-term retirement plan. They also can becheaper to operate if costs are passed on to employees. Finally,they allow executives to be more realistic in terms of thebenefits they can afford to provide.

still, for both employees and employers, all of thesepotential gains will prove illusory unless employees are able toutilize defined- contribution plans to their maximum advantage.Unfortunately, when facing what perhaps is the single mostimportant financial decision of their lives, many employees areill-equipped to take on the new responsibilities of these plans. ~/

Most employees already know how to save, but they need to betaught how to invest. Simply providing information about the

2/ See, Ellen E. Schultz, In New Pension Plans, Companies ArePutting the Onus on Workers, The Wall Street Journal, July 7,1992, at AI.

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company's retirement plan and the available investmentalternatives is not enough. Let's face it, without guidance, thefundamentals of retirement planning escape most employees.Determining realistic retirement goals, selecting an investmentportfolio designed to achieve those goals, and continuouslyassessing the portfolio's performance in a volatile investmentenvironment is well beyond the expertise of most Americanworkers.

Indeed, numerous studies show that American workers do notalways understand the challenges that retirement planningpresents. A recent survey by Hewitt Associates revealed that onaverage, 28 percent of all eligible employees do not participatein their company plans. &/ Some simply do not realize that theburden of retirement planning now falls on their shoulders.Others recognize the need to take some action, but find theircompany plans confusing and the investment options perplexing.Finally, even for those that realize the advantages of a defined-contribution plan, they simply do not have the skills or thetraining to structure a retirement portfolio that will eventuallymeet their needs.

This last point is best illustrated by comparing assetallocation strategies used by defined-benefit plans to thoseemployed by individuals in defined-contribution plans. Accordingto a study by Greenwich Associates, professionals who managecorporate pension funds have upwards of 55 percent of theirassets in equities and just over 1 percent in GuaranteedInvestment Contracts, or GlCs. Employees, on the other hand,invest almost 37 percent of their funds in GICS, and less than18% of their assets consist of equities other than their owncompany's stock. Of course, equities aren't always going toperform like they did in the 1980's. But just imagine how muchmoney was left on the table during the past ten years byparticipants in defined-contribution plans.

For some employees, a portfolio dominated by income-~roducing securities may indeed be perfect to fund their expectedfuture needs. But I fear that most employees choose amonginvestment alternatives without any in-depth retirement planning:they simply pick what looks the safest, with little thought tothe ultimate goals that they are trying to achieve.

~/ Not surprisingly, participation rates increase when anemployer matches some portion of its employees' contributions.According to a study recently completed by the Wyatt Co., whenan employer matched 25% of an employee's contribution,employee participation rates increased from 51% to 66%; andwhen a 100% match was used, participation increased to 74%.

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Whether through a lack of education, insufficient communi-cation, inadequate services, or just plain inertia, employees arelosing the opportunity to provide for their own future standardof living. If this opportunity is lost, we the people -- or moreaccurately, we the taxpayers, whether individuals or corporations-- will once again be stuck with the bill. And that assumes thatthe government balance sheet can still handle the load. Perhaps,in future presidential campaigns, the phrase: "Ask not what yourCountry can do for you ..... will take on a whole new meaning.Indeed, I think we're getting a dose of that reality right now.

How did we get to this point? How is it that we have thebest investment expertise in the world, but have managed tocreate a tremendous gap between that expertise and theindividuals that so desperately need it? Once again thelitigious nature of our society is partly to blame. Manyemployers and plan sponsors see the need to improvecommunications and provide employees with the information andeducation that they need. Many, however, appear to be hesitantto voluntarily take on these efforts for fear of incurring legalliability for poor investment decisions made by their employees.In fact, many companies administer their defined-contributionplans through their human resources departments, rather thanthrough the more specialized department responsible for theirdefined-benefit plans.

Ironically, for employers and plan sponsors, the inactioncaused by this fear of litigation may eventually mean morelitigation. If plan fiduciaries employed the same assetallocation strategies as those currently used by the majority ofdefined-contribution plan participants, the plan fiduciariesprobably would be sued for professional negligence. But ifemployees continue to make these same mistakes and wind up withinadequate retirement assets, it will not be too long beforeclass-action lawyers start laying the blame at the foot of everyperson who possibly could have taken steps to save theseemployees from themselves.

THE GOVERNMENT RESPONSE:MORE DISCLOSURE AND ATTEMPTS TO LIMIT LIABILITY

The Department of Labor and the SEC, two of the federalregulators with an interest in this area, are taking steps toaddress some of the concerns I've just outlined. By itsauthority under ERISA, the Department of Labor, of course,oversees the regulations governing all retirement plans,including defined-contribution plans. At the SEC, we haveapproached this problem from the viewpoint of the planparticipant, who, like any other individual purchasinginvestments, is entitled to the full protection that federalsecurities laws are designed to afford.

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,Since its creation, the SEC has been committed to empoweringAmerlcans to handle their own investment decisions. But for themany employees participating in defined-contribution plans, thisprinciple has little meaning, because they are simply notreceiving enough information about their investment choices.That's because most plans typically offer a choice betweeninvestment vehicles offered by mutual funds, banks or insurancecompanies, and the investment vehicles offered by hanks andinsurance companies are generally exempt from most provisions ofthe federal securities laws. still, certain banks and insurancecompanies voluntarily provide information about their investmentvehicles directly to plan participants. By law, however, theyare not required to do so. And while some mutual funds alsoprovide prospectuses directly to plan participants, as regulatedentities under the federal securities laws they are only requiredto provide prospectuses to plan sponsors.

The end result is that under current regulations, a planparticipant receives plenty of information about the mechanics ofhis defined-contribution plan, but not nearly enough about theinvestment alternatives offered under the plan. And even moredisturbing, there is no obligation for anyone to provideparticipants even the most rudimentary education concerning theneed for early participation and effective portfolio assetallocation. Yet these are perhaps the two most critical elementsof retirement planning.

THE APPROACH OF THESEC's DIVISION OF INVESTMENT MANAGEMENT

The SEC's Division of Investment Management ("the Division")recognized some of these deficiencies in its recently releasedstudy titled Protecting Investors: A Half century of Investmentcompany Regulation. To address these concerns, the reportrecommended that the Commission propose legislation to amend thesecurities laws in several respects. The suggested amendmentswould require banks and insurance companies to register theinterests in the investment vehicles they offer in connectionwith defined-contribution plans. The amendments also wouldrequire delivery of current prospectuses and shareholder reportsto plan participants who select these investment alternatives.Additionally, the report recommended that the Commission amendthe rules under the Investment Company Act of 1940 to requiremutual funds to deliver shareholder reports directly to planparticipants.

According to our Division of Investment Management, ifadopted by the SEC and approved by Congress, these changes willgo a long way towards helping plan participants make informedinvestment decisions.

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THE APPROACH OF THE DEPARTMENT OF LABOR

The Department of Labor has chosen a slightly different tackto address the concern that plan participants need enhanceddisclosures when choosing among investment alternatives. LastOctober, after a five-year process, Labor adopted Regulation404c-l, a new regulation under ERISA. This new rule is designedto encourage plan sponsors to provide more information toparticipants by directly addressing the liability concerns ofemployers. Compliance is not mandatory, but if the requirementsof the rule are met, defined-contribution plan sponsors willsupposedly enjoy relative immunity from lawsuits over fiduciaryresponsibility if employee investments don't live up toexpectations.

The rules mandate that plan sponsors must provide a minimumof three investment alternatives, and furnish a generaldescription of each alternative. For those alternativesregistered under the federal securities laws, a prospectus mustbe provided to the participant immediately before or after theinitial investment in that alternative. Additionally, uponrequest, plan sponsors must furnish to plan participants updatedprospectuses, shareholder reports and any other materialsprovided to the plan sponsor about an investment alternative.

While the Division's recommendations go farther than Labor'snew disclosure requirements, they actually dovetail quite well incertain respects. The Division's recommendations would requirethat interests in the investment vehicles offered by banks andinsurance companies be registered under the securities laws,which, under Labor's new rules, would then obligate employers toprovide plan participants more information about these particularinvestment vehicles. The Division's recommendations also wouldmake available to plan fiduciaries updated prospectuses andshareholder reports for distribution to employees.

Labor's new regulations and the Division's recommendationsare both steps in the right direction. However, some practicalproblems do remain. First, the Division's recommendations willultimately require legislative action by Congress, and how soonthat could be accomplished remains to be seen. I do hope that inthis current session, Congress will take a hard look not just atthe problems at the PBGe, but also at the issues raised byAmerica's growing reliance on defined-contribution plans to fundthe next generation's retirement.

Second, compliance with Labor's new regulations is notmandatory, and according to a survey by Hewitt Associates, as oflast year, fewer than 35% of all plans could meet these minimumrequirements as proposed. Despite the new regulations, someemployers are bound to remain unsure about their potential

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liability exposure. In a somewhat analogous situation, manyemployers waited several years after ERISA was first enactedbefore they were comfortable enough to take strong positions onthe investment policy of their defined-benefit plans. 2/

Third, although a large number of defined-contribution planshope to comply or are considering complying with the new 404c-lregulations, I am not sure that employers relying on thisregulation will be able to avoid future lawsuits altogether.Many have complained that the guidelines are too general toguarantee adequate protection. still, employers and plansponsors that have been hesitant to provide additionalinformation to employees will now be able to act with a greaterdegree of confidence.

But 20 or 30 years from now, if millions of retirees arehaving trouble making ends meet, you can bet that plaintiffs'lawyers across the country will be looking for someone to sue.The new regulations might Ultimately provide an adequate defense,but this may be an instance where tomorrow's lawsuits can best beavoided by taking steps today to help employees build sufficientretirement assets. That would be a better ending, wouldn't it?

Now, all this leads me to my main concern. Even assumingthat the Division'S recommendations are implemented and that themajority of all plans voluntarily comply with the new 404(c)regulations, the improved disclosure that results will notaddress the most pressing problem facing employees: most lackthe education and experience, and in some instances, theinvestment alternatives, to plan their retirement effectively.You can not empower without enlightenment.

THE MARKET RESPONDS TO THE CHALLENGEAny government solution to the problems facing participants

in defined-contribution plans can only go so far. All theeconomic headlines coming out of Washington today clearlyillustrate that there is no government pot of gold at the end ofthe rainbow. The real solution lies in the marketplace anddepends on American competence and know-how. More and moreemployees have been empowered to plan their retirement, and it isup to the market players in this area -- the employers, the plansponsors and those that provide the investment alternatives -- tostep up to the plate and provide the education and investmentvehicles that are needed.

1/ Strengthening Relationships, Improving Performance, GreenwichAssociates (1992), at vii.

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I'm encouraged to see that many employers are alreadybeginning to respond to this challenge. For example, Alcoarecently re-designed its 401(k) plan to make it more responsiveand give plan participants greater control over their accounts.The system includes touch-screen computer consoles that allowemployees to work through "what if" scenarios to help them makebetter and more informed investment decisions. J./ At theaccounting firm of Deloitte & Touche, employees now receivemonthly newsletters that discuss, among other things, theadvantages of participating in the firm's 401(k) plan. Thesenewsletters also explain how to read mutual fund price listingsin the newspaper so that plan participants can follow theirinvestments.

IBM hired an outside consultant to write and distribute aquarterly newsletter tailored specifically to IBM's plan. Withindays of the appearance of the newsletter, calls to the plan's"800" number jumped almost 30 percent, with most of them comingfrom employees seeking to re-allocate their assets to increasethe potential for greater long-term returns. ~/

Today's employees can no longer be satisfied by simplysaving for their retirement -- they must also be investing forit. Plan participants must be taught the fundamentals ofinvesting. They must be taught that retirement planning is along-term endeavor. They must be taught how to avoid the classicpitfalls of inexperienced investors, such as chasing lastquarter's hot sector fund rather than dollar-cost averaging intoan asset class. Providing additional information is not all thatis needed. Employees need to be taught to use what they aregiven.

A growing number of companies, both large and small, areoffering quarterly investment seminars and videotapes to explain,among other things, goal-setting techniques, asset allocationprinciples, the theories of riSk and reward, and how to read aprospectus. In addition to these services, some companies, suchas Bechtel and Motorola, are making asset allocation decisionseasy for some categories of employees by offering planparticipants the option of a single ready-mixed diversified fund. 101

~I Julie Rohrer, Alcoa's Grand Design, Institutional Investor,November 1992, at 139.

21 Julie Rohrer, Plan Participants as Consumers, InstitutionalInvestor, January 1992, at 223.

ill Hillary Durgin, Towers Perrin Joins Market Share Battle,Pensions & Investment, December 7, 1992, at 26.

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other companies are creating plans that meet the needs ofthe spectrum of ages present in their workforce. Winn-Dixie'snew plan, developed in conjunction with T. Rowe Price, customizesinvestment alternatives depending on the demographics of theemployee population. 11/ Perhaps the wave of the future is oneservice being offered where financial advisers armed with laptopcomputers sign up participants one at a time, using specialsoftware designed to create the best asset allocation for thatindividual.

Employers are not alone in their efforts. As I mentionedearlier, many banks and insurance companies have attempted toaddress the information gap by voluntarily providing informationstatements equivalent to prospectuses, or issuing quarterlystatements that contain much of the same type of data. Themutual fund industry also has been trying to ensure that planparticipants get the information they need. For example, for thepast few years Vanguard and Putnam have voluntarily providedshort form versions of their retail prospectuses directly to planparticipants. 1Z/

other mutual funds have gone a step further than simplyproviding more information. Fidelity Investments and T. RowePrice both offer programs that educate employees about investmentstrategies so they can choose investment alternatives that bestsuit their individual needs. Because of liability concerns,these firms do not offer investment advice; instead they presentmodels to help plan participants understand and appreciate theneed for diversity in their retirement portfolios. 11/

Brokerage firms are also getting involved. Dean witter hasplans to introduce a bundled package of defined-contribution planservices, which will include participant education and investmentmanagement services. The Department of Labor recently granted toShears on Lehman Brothers an exemption from ERISA's prohibitedtransactions provisions so that the firm can provide a retirementadvisory service. As part of the service, defined-contributionplan participants receive advice on how to allocate their assetsbased on a variety of factors, and then are given a choice ofmutual funds in which to invest. Shearson avoids any potentialliability concerns caused by conflicts of interest by only

11/ Mary Rowland, A Model Flexible 401(k) Plan, N.Y. Times,January 3, 1993, at F1~.

12/ Julie Rohrer, The SEC Means Well r ButInvestor, August 1992, at 117.

Institutional

U/ Hillary Durgin, Fidelity Takes Participation Education ToLi~it, Pensions & Investment, December 7, 1992, at 24.

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offering mutual funds managed by outside managers under contractwith Shearson.

Of course, employers and plan sponsors should carefullyselect persons to provide investment advice to their employees.Investment advisers that provide asset allocation advice to planparticipants generally must be registered under the InvestmentAdvisers Act of 1940 and comply with the Act's disclosure andantifraud provisions. The disclosure provisions require that aninvestment adviser provide each client with a brochure describingthe adviser's background, experience, fees and potentialconflicts of interest. This brochure should be carefullyreviewed before entering into an advisory contract to ensure thatthe adviser is qualified to advise their employees and to protecttheir plan from p~ying excessive fees, which cut into theemployees' investment return.

The response of the marketplace so far to the problemsfacing participants in defined-contribution plans is to beapplauded. But more needs to be done -- and quickly. The stakesare very high. If you simply take all that we know aboutretirement planning and extrapolate future retiree income basedon the way defined-contribution plans are currently investedWould anyone like to bet on a future topic for Congressionalhearings?

The amount of assets in self-directed pension planscurrently exceeds $1 trillion and can be expected to increasesignificantly in the future. 14/ These assets provide a hugepool of capital to finance future growth. Poor investmentdecisions by employees, however, will influence the size anddepth of the pool of capital available. To protect the financialwell-being of retirees and also encourage a plentiful supply ofcapital, it is critical that employees, employers and planfiduciaries continue to educate themselves and others regardingthe changing responsibilities that these plans engender.

Now there is much talk of using investments from largepension funds -- both public and private -- as a means ofcreating jobs, promoting growth and even curing the illscurrently facing our society. Just last week, there were callsfor pension funds to help pay to rebuild the nation's roads,bridges, and highways. 1..2./ Whether called "economically

14/ Ellen E. Schultz, In New Pension Plans, Companies Are Puttingthe Onus on Workers, The Wall street Journal, July 7, 1992,at Al.

15/ David A. Vise, Panel Endorses Clinton's Vision Of TappingNation's Pension Funds, The Washington Post, January 29, 1993,at Fl.

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targeted" investing or "social" investing, the goal is the same:to tap pension fund assets to underwrite capital-intensiveprojects traditionally financed by the government. As thecountry's funding needs increase, so, too, will the demands onthe available supply of capital. Perhaps some of you read lastmonth about Los Angeles county's plan to address a projectedshortfall in its operating ~udqet by asking county employees toinvest a portion of their retirement savings in an investmentvehicle sponsored by the county.

Let's not forget that for any person managing retirementassets, be it a professional or a county employee, the primarygoal is to maximize risk-adjusted returns for the portfolio.Attempting to maximize returns, while also achieving socialgoals, is in effect trying to serve two masters at once. It iscomplex and risky, if not impossible; and the end result islikely to be that neither master is particularly well-served. Ifemployees are going to be asked to possibly sacrifice their ownfuture financial security to help their employer or society as awhole, they must be fUlly educated to appreciate the true risksthat this type of request entails.

I should add that the same goes for those plans that includecompany stock as an investment option. The option to invest inyour employer's stock does have a place in a plan that has well-diversified investment alternatives. But employees choosing thisalternative must clearly understand that they are depending onthe same source for their current income and their retirementassets. As the workers at Carter Hawley Hale found out the hardway, if everything goes wrong for your employer, you could loseboth your job and your retirement savings in one fell swoop. ~/

CONCLUSION

The baby-boom population is moving through its peak earningyears towards retirement, and time is on our side -- but not forvery long. A serious possibility exists that the next generationof retirees will face an order of magnitude downgrade in theirstandard of living. To adequately provide for our futures takesmore than simple earnest effort -- more than "saving ourpennies." The ability to choose wise investments takesknowledge: a basic grasp of the markets; an understanding of thebalance between risk and reward; the knowledge that time ismoney, and that money saved at age 25 is more valuable than moneysaved at age 35, and as much as ten times more valuable thanmoney saved at age 45.

16/ Francine Schwadel, Carter Hawley 401(k)'s Yield Falls Short,The Wall Street Journal, June 18, 1992, at Cl.

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Employees who bear the risk of making investment decisionsabout their retirement plan assets need to be better educatedabout all aspects of retirement planning to enable them to makeeffective investment decisions. They need to know more about theavailable options offered by their pension plans so that they candecide how best to allocate and diversify the investment of theirretirement assets. They also need improved ongoing disclosure tokeep this information up-to-date and to inform them as to theperformance of their investments to enable them to decide whetherand how to reallocate their investments.

America has the largest, most efficient, deepest, andfairest financial markets in the world. Our ability to raiseenormous capital is second to none, and our ability to generatelong-term investment returns is second to none. In the words ofthat great Baltimore philosopher, former Orioles' manager EarlWeaver, this country has "deep-depth" in this area. But we'renot going to win the game if we continue to send our players ontothe field without a coach or without any training.

When employees participated in defined-benefit plans,they had access to a large body of investment expertise. Now, agap exists between this know-how and those employeesparticipating in defined-contribution plans. If we cansuccessfully close this gap, the standard of living of futureretirees will be improved and future demands on America's balancesheet will be greatly reduced.

America looks to you to impart your expertise to your fellowcitizens. We all know the Chinese proverb, "Give a man a fishand he eats for a day, but teach him how to fish and he eats fora lifetime." By educating Americans how to invest wisely now,you will be helping them to achieve a lifetime of security andprosperity.

Thank you.

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