Possibly stupid question for DU stock market experts, cause I

[Skidmore]

am not sure how to formulate it and if it is worth asking.

I've been thinking a little bit about pension plans and how corporations have been successful at linking them to the stock markets over the past few decades. I remember my grandfather's pension as being from the fund held by his company, that it had nothing to do with the stock market. Now that so many of us have been made members of the "investor class" by default, I was wondering how much of that paper mountain that Wall Street sits precariouly atop exists because of these pension plans and their investments? Would the traditional market of the "old days" have collapsed if it weren't for bringing in pension plans as investors?

BTW, I get the Zogby poll to complete periodically and one of the questions they ask toward the end of every poll is if you consider yourself a member of the "investor class." I used to mark it yes because part of my retirement package is a stock portfolio. I've rethought my answer and now mark it down as a no. I really had no choice in whether or not to invest. As an employee, I was required to sign up for the retirement plan and those were the options available. I have a real problem with this idea of an investor class at all. To me it is a weasel word phrase somehow being used to cover for some major bad economic policy but I can't precisely identify why I believe this. Hence, my question.

[izzie]

1. I would say the man running the fund is the one to say yes

I have a fund controlled by a bank and I must say what it pays is just bad. The fund has to grew which it does but my pay is just bad. The bank makes almost as much as I do. My children will see the results. Wrong way to have it set up but so be it and I can not do a thing as I took any control off when it was set up. On a regular retirement I think you have more control than I have left my self. I have read that the retirement funds have make the stock market great for the dealers. Look what many got this year. Millions dealing in your money or a good deal your money.

[MazeRat7]

2. Ok, I'll take a crack at this... (before the morning coffee even)

First, I would suggest reading the Wiki Page on Pensions

Since occupational pensions are basically paid as an annuity, this implies there is some "investment to produce gains" on the part of the agency issuing the annuity contract. They take your money and guarantee an annual sum payback. Because this is generally an instrument of the insurance companies, you can bet they are using your money to make enough money to pay you back plus put something in their own pockets. What means they use for those investments, stocks, bonds, etc, would be up to each company. So in effect the company that has a pension contract is basically running a private mutual fund in order to generate the necessary $$$ to fund the contract.

This is really an over simplification, which is why I suggested reading the Wiki reference above.

As for how much of "the market" is funded by pensions, 401k's, and other retirement plans.... I don't really know.
I would guess that since something like 90% of the worlds wealth belongs to 1% of the population (my stats may be wrong there), the vast majority of "street paper" belongs to people/companies that have some type of arrangement with fund management firms that are not associated with the concept of "an employer". Granted, this would include annuities, stocks, bonds, etc... but not part of an employment package per-se.

Hope that helps....

MZr7

edit: BTW... I'm not an expert in this at all, but I do manage the majority of my own retirement funds. (and I did once stay in a red roof inn) :)

[papau]

3. Define "investor class" as those whose wealth is affected by market - and you get

a large number that is useful for political reasons - namely so as to justify 15% dividend tax rates, taxing only 50% of gains via reduced tax rates on gains, not taxing investment income for the Social Security/Medicare tax ("payroll tax"), etc.

But asking just how much wealth in the market is in the wealth of the lower 50% and you get very low single digit percentages. The market affects only the well off directly.

Your stock portfolio if vested does make you part of the investor class - but I'd think having a good pension where all the investment risk is on the company is better( this latter benefit is what is called a defined benefit plan and which is in contrast to an account plan or money purchase or profit sharing or 401k or all the other less valuable forms of retirement benefits).

Alas as unions have become weaker in the US, defined benefit plans have dropped from 150,000 plans to about 20,000 plans today (the number covered has dropped but not as drastically - from a little over 50% to under 25% of the workforce today)