Masonry Magazine September 1962 Page. 13
in Series
(Continued from page 11)
There are wide differences of opinion on how the plan should be funded, and the trustees will be exposed to conflicting claims of a highly technical nature. Trustees will have to make the decision, however. This can probably best be accomplished by personal interviews with representatives from the insurance companies and the banks. One method used with success is to invite one or two insurance companies to speak for the insured method and one or two banks to speak for the uninsured method. After the trustees have determined the method, they would then secure bids from a representative group of insurance companies or banks, as the case may be. The format for the bids can be supplied by the various insurance companies or banks. In any event, after the bids have been received, it is desirable to interview two or three of the organizations which appear to have the best bids and make the decision from these.
It is important to understand the effect of investment yield on a pension plan. Typically, if one method of investing can produce a long-term yield which is 1/4% higher than another method, this means that benefits payable by the negotiated contribution rate can be 5% higher.
The uninsured approach has enjoyed substantial success in the past several years. This has been due in large part to the favorable stock market situation in the past years. One other factor has favored the uninsured, namely, no Federal income tax liability on the investment earnings of the fund. At the present time, conditions are quite different. For example, there is no longer the obvious opportunity for appreciation in the stock market. There is no longer a Federal income tax on the investment earnings of insured pension plans. The competitive balance has thus been re-established. It appears the tide is turning in favor of insurance, with its guarantees and broad service facilities. Insurance companies invest mostly in bonds and mortgages. Many of the bonds are acquired through direct deals with the corporations, and this usually produces a higher yield. Mortgages produce a higher yield; mortgages also help your particular industry. Banks do not usually go into mortgages, and they do not invest in newly issued bonds to the same extent that insurance companies do. As a result, fixed-income investments with an insurance company are almost certain to
CHART 3
produce the best investment results on this type of investment. This is important because in the usual group annuity contract the insurer's full investment return is credited through its dividend formula.
In view of the past enthusiasm for the stock market as a pension fund investment, Chart 3 is rather fascinating. This chart shows that the past decade has produced very substantial changes in stock prices, but the after-tax earnings of corporations have changed relatively little. Question: What has been holding the stock market up? Answer: A number of factors, but who would care to predict what is in store for the future in view of the recent stock market break and underlying changes in basic conditions.
In the final analysis, contributions to the pension fund are in the nature of wages for the covered employees. The trustees of the pension fund are thus acting in a fiduciary capacity for prudent management of these "wages". The real question becomes, is it proper to invest the funds (other than perhaps a small percentage) in stocks? If the employee were given the money directly, would he invest it in the stock market? The answer is no for the vast majority of employees. For these and other reasons, I am of the opinion that common stocks do not belong in the investment portfolio of a typical Taft-Hartley pension fund. Furthermore, since insurance
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YOUR PROFITS MAY BE TAKING A BOUNCING TOO!
Worn Bearings, Grooved Arbors create Vibration and Vibration Can Beat Your Masonry Blades to Death!
You know what happens to tire life when bearings are bad or wheels mis-aligned. The same vibration in a Masonry Saw can destroy Blades in a fraction of their normal life!
Check for "play" or vertical movement of the Arbor Shaft, the most minute amount can be SERIOUS! Equally important check the Arbor for "grooving". Diamond Blades especially MUST FIT SNUGLY. For your cost protection and operator safety NEVER use Wing Nuts for mounting Blades.
Robert Hert G. Z. Evans Co.
TARGET
• 6024 Troost Avenue Kansas City 10, Mo.
STOCKED AND SERVICED BY TARGET DEALERS THROUGHOUT THE WORLD.
ARY September, 1962
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