Pension Plan for Poverty

Garen Yegparian

BY GAREN YEGPARIAN

Imagine starting off the 2014 New Year knowing that you’re going to get screwed by your own government in yet another way. That’s what our compatriots in the Republic of Armenia (RoA) face starting January 1.

This time, the injury is being delivered via a “reformed” pension plan. The new system will put Armenia in the “illustrious” company of Chile, El Salvador, Mexico, and Kazakhstan— all countries noted for their extremely caring attitudes towards their citizens, NOT!

What will now happen is that everyone who is actually employed in the country will be OBLIGATED to contribute 5-10% of their income into the equivalent of what we know in the U.S. as a “401K” plan. The preexisting system was a little bit more like the U.S. Social Security program in that everyone contributed part of their pay and, upon retirement, received a pension based on years of employment, only (in this way it is different from Social Security which pays out based on one’s income, not just years of service).

In the interest of avoiding contentiousness about the merits of 401K plans (which I do not support), let’s just grant, for the sake of argument, that they represent a good approach. But, what goes into that approach?

Since 401Ks involve investing, usually in stock markets (sometimes through mutual funds), the first thing that becomes obvious is anyone using this type of system must be familiar with how such markets operate. This is not a skill that is easily acquired, nor is it one that everyone can appropriately master. That’s why the professions known as financial and investment advisors exist.

Now, not that I know for sure, and I don’t want to sell our eleven thousand square mile republic short, but I suspect not too many of those advisors exist there, given the Soviet era. Add to that the absence of extensive awareness, collectively, culturally of how markets fluctuate, when to buy and sell— UNEMOTIONALLY, the sometimes usurious fees charged by advisors and other handlers of people’s precious retirement funds, and the generally corrupt atmosphere that prevails, and you have a wonderful recipe for impoverishment upon retirement. Now, complicate that some more with the simple fact that some people will hit retirement age when the markets are doing well, while others will hit that age when they’re doing poorly.

Just look around the U.S. and you’ll learn of the dissatisfaction, or at the very least, worry, over how 401K plans are turning out for their owners. Then think about how bad an idea this type of approach is for the RoA. I can already hear the bleating as our hardworking compatriots are fleeced by unscrupulous operators.

At this point, I usually recommend some action to readers, but this time, I’m stymied. What can I ask you to do? Even though the four opposition parties in the RoA’s parliament are opposed to this foolhardy change in the law, they are vastly outnumbered by the governing Republican Party. So appealing to members of parliament is pointless, the Republicans are dead set on harming the population.

The opposition has filed suit in the RoA’s supreme court. Maybe we can write to them.
Regardless, if you think of an appropriate way to make your disapproval heard, please do it, and share that way with others.

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9 Comments

  1. Chris said:

    I have to disagree with the author of this article. 401k-s have a fund manger who handles the incesment portion of the fund. That means there is a third party who handles which accounts compile into the 401k without being emotionally involved. The author clearly needs to learn how fiancé works before he talks about the subject again. Oh wait I forgot, he I part of the anti Armenia diaspora who claims to do what is in his homeland’s best interest, but he only harms it and ruins any shed of credibility he may have once had.

    • Ara said:

      Managers of 401K accounts provide different fund options to the owners of 401K accounts. Some of these funds are risky and some of them are safe. Safe funds generate low rates of return, while risky funds generate high rates of return. The owners of 401k accounts, not the managers, decide which funds to pick. If an owner of a 401k account picks a risky fund and the financial markets go down, then the owner will see that she is losing her life savings and will become emotional. This owner might become so emotional and fearful that, after losing significant part of her savings, might decide to transfer her money from the risky fund to a safe fund, just before the financial markets start to go up again. This kind of behavior will cause a permanent loss of her 401K account. Therefore the author, Garen, is right and his knowledge of financial markets is sound, because emotions play a very important role in private individual retirement accounts, such as 401K accounts. For this reason it is highly risky and dangerous for a country to have a pension system where private individual retirement accounts are the only source of retirement income.

  2. Hayk said:

    What is the alternative trust a corrupt government to manage ones retirement funds?

    • www.Voskanapat.info said:

      As Dave Ramsey says, don’t listen to broke people’s advice on how to save money. And America is broke. The funny money monopoly game will end when the Chinese decide it’s time and it will be on their terms – “…the borrower is the slave of the lender” Proverbs 22:7.

      One only needs to take a look at the Chinese retirement system to understand that bombing other countries, robbing nations of natural resources and installing “democratic” regimes to control pipelines is not sustainable.

      The nomadic American civilization created 401k Ponzi scheme to be able to constantly move. Armenian and American civilizations have radically different and often mutually unacceptable values. People who were born into a society where filing personal injury lawsuits against parents/children, having 1000+ FB “friends” and not talking to a cousin across the street for years is a normal way of life seem to believe that it’s the only way.

      The Diasporans who are usually wise not to pop in at a local barber’s shop, or ask the dentist to step aside to give them advice on how to cut hair or drill teeth, would go on as far as to give unsolicited advice to politicians in another country on how to run their internal affairs, defend borders and negotiate peace. Amazing.

      • Ara said:

        If you think that Armenians in the Diaspora shouldn’t have an opinion or shouldn’t care about the problems of the Republic of Armenia, then listen to the Armenians in the Republic of Armenia who are against the mandatory private individual pension accounts. Read dem.am

        • www.Voskanapat.info said:

          No, I don’t think that Armenians in the Diaspora shouldn’t have an opinion or shouldn’t care. In fact, I care and have opinions. However, I don’t like it when other Armenians from the Diaspora and people for hire by foreign interests and corporations speak nonsense on my behalf and claim that they are the voice of the Diaspora.

          In my humble opinion, Armenia’s people and their government are quite capable of taking care of their internal and external matters.

  3. armen said:

    This may end up working out well. The SS system in the United states is turning out to be a disaster.

  4. Ara said:

    There are many alternatives where a corrupt government is not involved. One alternative could be a variation of U.S. social security system, where there are no individual retirement funds to manage. To learn about alternatives to risky private individual retirement accounts google “notional defined contribution” or “ non-financial defined contribution.”

  5. www.Voskanapat.info said:

    Will BP-Exxon-sponsored “democracy” bring prosperity to Armenian elderly? Look at democratic South Korea – US protected puppet regime, paper tiger with open ocean borders on three sides:

    http://www.washingtonpost.com/world/asia_pacific/for-south-koreas-seniors-a-return-to-poverty-as-confucian-filial-piety-weakens/2014/01/20/19769cf2-7b85-11e3-97d3-b9925ce2c57b_story.html

    “In a fast-paced nation famous for its high achievers and its big spending on private tutors and luxury goods, half of South Korea’s elderly are poor, the highest rate in the industrialized world.”

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