Some questions have easy answers

It just struck me that I know the answer to at least one question which surely must have puzzled at least a few people with respect to the Social Security debate in the USA.

Q: Why are the “administration costs” so much higher for private sector pension plans than SS? Isn’t it at least a little bit strange for a government program to have so much lower deadweight cost than a private sector one?

A: “Administration costs” is a euphemism; most of the difference between the cost of SS and the cost of a private pension plan is the commission paid to the adviser who sold the plan. These commissions are quite material and the costs are, of course, borne by the consumer in the final analysis (as I used to point out to graduate trainees, retail customers have to bear the cost of everything in the financial sector as they are the only ones who go out and work for a living).

There you go. If anyone else has a couple of “easy answers” like this, post ’em on your blog.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: