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BEWARE OF THE RHETORIC

Prior to my career with the Knights of Columbus, I spent 18 years at Evaluation Associates, a leading institutional consulting firm for pension funds, foundations, endowments, financial intermediaries, and insurance companies. While working for this company, one of my clients happened to be the Knights of Columbus, which occurred in 2002. When my predecessor announced his retirement, I was then hired by the Knights in 2005. It has been a fabulous 18 years and counting!

I have been reading with tremendous interest the stories about how to fix the U.S. pension system. One of the greatest concerns for individuals today is their ability to retire with reasonable security. Within our advisory process to individuals for KoCAA is a focus on understanding retirement needs and the ability to finance those needs. We are encouraging our members to begin thinking about retirement as early as possible so there is time to save and compound assets.

When I was a consultant, the vast majority of my business was focused on traditional defined-benefit pension plans, mainly for corporate clients. Alas, most of these plans are now frozen to new entrants and future benefits; we will come back to this point.

There was a recent hearing in the Senate about retirement security. I applaud them for the hearing and although I did not see it, I am sure the Senators used their time to ask pointed “gotcha” type questions as opposed to digging into the issue. Unfortunately, Washington is focused more on the theater in “political theater.” In any event, Senator Bernie Sanders predictably pounded on companies when he was quoted in Pensions & Investments, “As a result of a relentless 40-year war on the working class waged by corporate America, traditional pension plans have become an endangered species, on their way to extinction.”

Wrong. Thank you to legislation, pension funds were limited as to their ability to smooth out shortfalls in their pension funding over longer periods and companies had to immediately take an accounting hit to their business equity and contribute assets to their pension funds. Maintaining a strong-funded ratio is vitally important to the long-term health of a pension fund. Does a fund that will be covering liabilities for decades need to make up every shortfall in that calendar year? As funding became more onerous, pensions became more expensive, and companies moved to the 401(k) plan as a means of providing a benefit.

If Washington had been serious about pension funding, they would have found a common ground with companies to figure out a way to keep the pension system going. I am not optimistic that traditional pensions will be brought back. My advice to all is the same advice I gave my son as soon as he started working as an electrical apprentice: Save 15% of your pay now and keep saving 15% for the rest of your career. He started funding this in his early 20s and has been religious at keeping the payroll deduction going. When he bought a house and life got more expensive, he kept depositing the money. One way to build up to a 15% retirement fund savings is to start with a 5% annual payroll contribution and increase it every time you get a salary increase. Soon enough, you do not think about the deferral taking place and your balance continues to build.

We can be hopeful that old-fashioned pensions come back, but taking personal responsibility may be the only way to save for retirement. More to come on personal finance in future posts.

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

KoCAA is an SEC registered investment adviser that maintains a principal place of business in the State of Connecticut. For information about KoCAA’s business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov. KoCAA is a wholly owned subsidiary of Knights of Columbus, one of the world’s largest Catholic Lay Organizations. Investing involves risk and you may gain or lose money on your investments. For additional information visit KoCAA.com or write to kofcfunds@kofcassetadvisors.org.