Gladwell on collectivized pensions

There is a great piece by Malcolm Gladwell on the history of collectivized pension funds in today's paper version of The New Yorker. Interestingly, the word "diversification" does not appear once in the entire piece.

There are a couple of problems with company-operated pension funds:

- The more successful your company is over long-term, the more of a burden you are saddled with as employees get older and retire.

- The incentive to innovate (in terms of labor-reducing technology) is depressed, due to the need of having a large workforce to keep the pension fund afloat.

- Employees of a company-run pension fund face an obvious diversification issue, especially if said pension is the sole source of retirement income.

- Collectivizing pension funds would reduce the risks that employees see, but like the existence of the government's Pension Benefit Guaranty Corporation, it provides a lower incentive for companies to be responsible for their own funds if someone else is there to bail them out if they get into trouble. On the plus side (for the employees), it would take a whole collectivized group to fail instead of just one firm (which would then default to the PBGC). On the downside (for the company), any one employer could be in the situation of carrying more than its own weight in the group. I think that this is the exact fear any one company would have in joining a collectivized pension fund. And with the existence of the PBGC, the benefits seem almost nil.

Though only tangentially related to pension funds, Gladwell also gets into dependency ratios and their role in economic development. Saying that dependency ratios have an impact on economic growth implicitly assumes a welfare state in any country...which, sadly, probably isn't too far from the truth (if not spot on).