Study Makes Case for Pension Systems to Invest in Equity Index Funds

A recent article in Governing, highlights a study by the Maryland Tax Education Foundation and the Maryland Public Policy Institute which found that state retirement systems are paying too much in administrative fees for investment managers and should instead be investing in equity index funds.  However, not all agree with this finding.

The study by the conservative-leaning Maryland Tax Education Foundation and Maryland Public Policy Institute outlines fees state pension funds pay investment firms, totaling $7.8 billion nationwide in 2011. This price tag is too high, the authors argue, given their meager returns in recent years.

Pension experts interviewed for this story, though, question the validity of the report, which compares investment firm fees with each plan’s net assets. Even with the higher fees, they say additional returns from investment managers outweigh the added cost in the long run, and tossing more money into equity index funds wouldn’t diversify portfolios.

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