Yesterday, I had the opportunity to share in a lunch event with Bill Quinn, who is Chairman of American Beacon advisors and manages approximately $38 Billion.
At the American Airlines Flight museum yesterday for lunch, I had the opportunity to visit with, and listen to Bill Quinn, an icon of investment management, especially in the Dallas Texas area.
Bill had a few interesting comments worth noting.
Concerning Defined Benefit Plans (Pensions), he had the following comments.
- Pensions are a good thing for employees (We agree, as pensions provide a base foundation of income for retired employees)
- Pensions have been the unfortunate whipping boy of FASB and the PBGC as both have tightened controls making pensions less attractive for companies.
- Lower interest rates and flat capital markets have attributed to underfunding; Current average pensions are 79% funded, or underfunded by 21%
- Most pensions allocate their funds approximately 60% Equity/40% Fixed Income and other
- Companies are leaving pension plans due to the earnings effects pensions cause, sometimes helping and other times hurting
- (A major theme of his discussion was that pensions are good, but individuals will be more likely to have to save and invest on their own in the future)
Concerning Defined Contribution Plans (401k’s and the likes):
- About 1/3 contribute to a good or full level
- About 1/3 contribute, but negligibly
- About 1/3 do not contribute
- Savings rates are way too low into Defined Contribution Plans
- Investors make the wrong decisions, buying high and selling low, on average, (buying the best investment over the last 12 months)
- Timing the markets does not work as investors, are often irrational at the incorrect time
In closing, I am very lucky to have the opportunity to interface with many long time investment professionals, most through my affiliation with the CFA organization, and even happier to share highlights of conversations with you.
Have a good day!