Zeev's Turnips Patch-No Politics (ZEEV)

[TJ Parker]

Social Security Reform a Boon for Funds?
Sat Nov 6, 2004 08:57 PM ET

By Herbert Lash

NEW YORK (Reuters) - The bonanza many believe President Bush has handed the mutual fund industry with his plans to reform Social Security may be a mirage, industry leaders said on Friday.

How workers will be allowed to invest some of their payroll taxes in the stock market is far from clear, but there is a presumption it will be windfall for an industry that manages the nest eggs of about 95 million Americans.

The administrative costs for managing accounts that for the most part will hold less than $1,000 in the first year suggests mutual fund companies could easily lose money for at least several years, industry experts said.

"It is not clear that if you have private accounts that this will be a bonanza to the mutual fund industry," said Robert Pozens, chairman of MFS Investment Management in Boston. "If certain design decisions are made, it might turn out to be a very difficult place to make a profit."

Pozens also said he believed Congress might try to guarantee returns for investors, which would slap an obligation on the government the accounts are trying to ease.

Because of the small size of most accounts, it will probably take five years to get the system off the ground and be a size that is reasonable for the private sector, he said.

The Investment Company Institute, the main lobby for the mutual fund industry, has said the transition to personal retirement accounts will require government-sponsored funds.

Mario Gabelli, chairman of Gabelli Asset Management Inc., said mutual funds would be the logical depositary of any decision to create personal retirement accounts for workers.

But he said the costs associated with keeping track of the Social Security accounts will be burdensome for many money managers. "You can't make money on it," he said.

The ICI is also concerned that the public will need to be educated on investing if the retirement accounts are to fly.

"We don't think you can be successful without some sort of investor education. Otherwise young investors might put their money in inappropriate investments," said ICI spokesman John Collins.

[continued]

http://www.reuters.com/newsArticle.jhtml;jsessionid=G5C03MEEOGHSMCRBAEOCFFA?type=businessNews&st...