� S T A R S A N D S T R I P E S �PAGE 2 F3HIJKLM Saturday, May 16, 2009
WASHINGTON -- The U.S. recession is
wreaking havoc on yet another front: the So-
cial Security trust fund.
With unemployment rising, the payroll tax
revenuethatfinancesSocialSecuritybenefits
for nearly 51 million retirees and other re-
cipients is falling, according to a report from
the Congressional Budget Office. As a result,
the trust fund's annual surplus is forecast to
all but vanish next year -- nearly a decade
ahead of schedule -- and deprive the govern-
ment of billions of dollars it had been count-
ing on to help balance the nation's books.
While the new numbers will not affect pay-
ments to current Social Security recipients,
experts say, the disappearing surplus could
have considerable implications for the gov-
ernment's already grim financial situation.
The Treasury Department has for decades
borrowed money from the Social Security
trust fund to finance government operations.
If it is no longer able to do so, it could be
forced to borrow an additional $700 billion
over the next decade from China, Japan and
other investors. And at some point, perhaps
as early as 2017, according to the CBO, the
Treasury would have to start repaying the
billions it has borrowed from the trust fund
over the past 25 years, driving the nation
further into debt or forcing Congress to raise
taxes.
The new forecast is fueling calls for reform
of the Social Security system from conserva-
tive analysts, who say it underscores the fi-
nancial fragility of a system that serves as
a primary source of income for millions of
Americans.
"It suggests we better get working on So-
cial Security and stop burying our heads
in the sand," said Sen. Judd Gregg, R-N.H.,
the senior Republican on the Senate Budget
Committee. "The Social Security trust fund,
though technically in balance, is going to put
huge pressures on taxpayers very soon."
Many liberal analysts reject the notion
that Social Security needs fixing, arguing
that the system is projected to fully support
payments to beneficiaries through 2041 -- so
long as the Treasury repays its debts.
Though President Barack Obama has
pledged to address the precarious financial
situation of Social Security, the administra-
tion currently has no plans to do so. Under
pressure from congressional Democrats who
argued that Social Security should not be at
the top of the new administration's agenda,
the White House last month dropped a pro-
posal to name a task force to re-examine the
program.
During the campaign, Obama proposed ap-
plying payroll taxes to annual earnings over
$250,000 to help fund Social Security after
the surplus vanishes. With the new numbers,
some analysts said, the president might be
forced to step up the timetable.
--The Washington Post
Recession may dent Social Security fund 2009 Retirement
Planning Guide
Dan Krause
Advertising Director
202-761-0910
kraused@stripes.osd.mil
Doug Dougherty
Advertising Manager
202-761-0776
doughertyd@stripes.osd.mil
Mike Henry
Account Executive
202-761-0890
henrym@stripes.osd.mil
Eric Brandner
Section Editor
Phone: 202-761-0760
brandnere@stripes.osd.mil
* * *
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`Set it and forget it' funds
can be risky proposition
Target-date mutual funds are market-
ed as a safe and easy path to retirement
planning, but their recent poor perfor-
mance is raising questions about the
"set it and forget it" style of long-term
investing.
Companies that offer target-date mu-
tual funds make an implicit promise that
people who invest in them will not expe-
rience great losses just before the time
when they need the money. Yet the four
largest target-date funds for people who
are set to retire in 2010 lost an average
of 25 percent last year, and one of them
is down more than 40 percent.
In an admittedly tough economy, every
one of the 264 target-date funds sold by
the 39 mutual-fund firms lost money in
2008, according to a recent report by Ib-
botson Associates, a Morningstar com-
pany. The smallest loss was 3.6 percent,
and the largest was 44.5 percent.
"This concept of `set it and forget
it' sounds easy enough, but can actu-
ally lull individual investors into a false
sense of security," said Mike Saghy, di-
rector of investments for PNC Wealth
Management.
Target-date funds have gained popu-
larity as retirement-investing options
since they were created 15 years ago,
and they picked up even more steam in
2006 after the Pension Protection Act
allowed plan sponsors to make them de-
fault choices for employees who make no
mutual-fund choices in their 401(k)s.
Also known as life-cycle funds and
age-based funds, target-date funds let
investors determine the year they want
to retire, and as time goes by the fund
automatically rebalances to be more
heavily weighted with bonds and less in-
vested in stocks as the target retirement
date nears.
Target-date-funds retirement goals
usually are spaced five years apart:
2010, 2015, 2020, etc.
"The product is very impersonal
when people believe it to be personal,"
said Paul Brahim, managing director at
BPU Investment Management. "Clients
somehow believe that mutual-fund com-
panies know when they plan to retire
and are protecting those assets.
"There is an assumption that by se-
lecting the fund retirement date that
it's the right asset mix for your accumu-
lated assets and future spending. That
doesn't mesh with prudent retirement
practices."
Target-date funds have become wide-
ly accepted, mainly because people with
little time or energy for retirement plan-
ning are overwhelmed by the thousands
upon thousands of mutual-fund choices.
But the unexpected steep losses in tar-
get-date funds prompted Congress to
turn a spotlight on how they operate.
Sen. Herb Kohl, D-Wis., chairman
of the Senate Committee on Aging, has
asked the Labor Department to regulate
the composition and marketing of these
funds. He's also asking the Securities
and Exchange Commission to scrutinize
the disclosure and underlying composi-
tion of target-date funds.
The idea that the funds shift to more
conservative investments as the target
date nears can be misleading. In recent
years, fund managers have become
more aggressive for higher returns, and
have assumed that investors will need to
stay invested well past their retirement
date to keep up with inflation, and have
maintained a higher percentage of in-
vestments in stocks.
The percentage of stocks held in
2010 target-date funds last year ranged
from 8 percent to 68 percent, accord-
ing to a letter Kohl wrote to the Labor
Department.
In market downturns, this type of
strategy could wreck the retirement
plans of investors who expect to with-
draw their money on the target date.
"The actual asset allocation in similar
target-date funds can vary widely from
fund company to fund company," Saghy
said.
As of the end of last year, about $180
billion was invested in target-date and
life-cycle funds, according to Boston re-
search firm Cerulli Associates.
--SHNS
Who is minding your chips?

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