Does the Electoral College Really Help Small States?

To the Editor:

While I do not favor eliminating the Electoral College per se, Lawrence Reed (“Ideas and Consequences,” March 2001) is incorrect in a major point—and it defines the need to modify the rules by which the College operates.

Mr. Reed states, “[T]he fact that a candidate must win a majority in the Electoral College means that he cannot focus all his resources in only a few large states.” This was very much put to the lie by the last election. By just looking at the state and county breakdowns of both electors and election results, it is painfully obvious that a candidate need win far less than half of the 50 states to “win” a majority in the Electoral College, a situation nearly mirroring a straight democratic/popular vote. By specifically focusing on and creating a win in the east- and west-coast populous states (hardly “non-regional” ideologically), a candidate can utterly ignore everyone else but Texas.

No, we do not need to, nor should we, eliminate the Electoral College. Mr. Reed’s reform would be a good legalism to address, but to adequately prevent an election dictated of, by, and for the coastal elite during a “close” race, we should also caveat the process to include a provision for shifting the balance of the vote in favor of the candidate who won a plurality of states (or perhaps counties, should there not be a plurality of states). In those circumstances, such a systemic change would provide a better “sense of the nation” and better “national” (versus “coastal”) representation in the electoral process. To do otherwise, either with the abolition of the College or maintaining the status-quo, courts the specter of leaving the heartland with no practical say in electing an executive.

—Bryan Potratz

Spokane, Wash.

Lawrence Reed replies:

In hindsight, given what we now know of how the election turned out, Mr. Potratz’s point has merit, but our difference is more one of degree than of substance. The Electoral College does not eliminate the temptation for candidates to focus on a few large states, but it does ameliorate it greatly. Indeed, not knowing how the electoral count would ultimately fall, neither one of the major party candidates actually ran a campaign aimed at only a handful of states. Both of them spread their attention across the great majority of states. Eliminate the Electoral College and you would vastly accentuate the value of a strategy that focuses on only a few.

A Question of Pensions

To the Editor:

My job as a pension actuary consists of calculating the liabilities of private-sector defined-benefit pension plans, such as those criticized by Mark Skousen in his article “Social Security Reform: Lessons from the Private Sector” (March 2001).

While I believe that there is a place for 401(k) plans, I also believe that a 401(k) should generally be a supplement to a defined-benefit pension plan, which should be the “anchor” of any medium or large employer’s retirement program. Briefly, here are my reasons:

1. In a defined-benefit plan, the employer bears the investment risk. In a 401(k), the employee bears this risk. While this may seem a disadvantage during periods when investment returns are high (such as the recent past), we may be about to see just how much of an advantage (to the employees) a defined-benefit plan can be to employees when the market goes south.

2. While Mr. Skousen is correct that an employee leaving his job can take his 401(k) money with him to an IRA, he fails to mention that the employee can also take this money in cash (admittedly, after paying hefty taxes) and spend it, which hardly helps to make his retirement secure.

3. Mr. Skousen’s point about short-service employees possibly not having “vesting rights” when they terminate employment is as true for a 401(k) plan as for a defined-benefit plan. While the employee’s own contributions to a 401(k) are always 100 percent vested (as are his own contributions, if any, to a defined-benefit plan), this is not the case for employer contributions. (Many, if not most, 401(k) plans consist of both employee and employer contributions.) The rules (set out in the Internal Revenue Code and ERISA) are exactly the same for employer contributions to a 401(k) plan as they are for defined-benefit plans.

4. Even if a retiree (or an employee who leaves employment before retirement) uses his 401(k) money for the purpose for which it is intended, there is the distinct possibility, given today’s increasing longevity, that he will outlive his money. This cannot happen with a defined-benefit plan, which promises a monthly income for life (and perhaps beyond, in the form of a pension payable to the employee’s spouse after his death).

I agree with Mr. Skousen that the rules surrounding defined-benefit plans that have been propounded by government are more complex and detailed than they need to be. However, arguing from that that defined-benefit pension plans are always and everywhere inferior to 401(k)-type retirement vehicles is equivalent to throwing the baby out with the bath water.

—Kenneth T. Pawulski

Amarillo, Texas

Mark Skousen replies:

I’m afraid Mr. Pawulski is letting his professional interest as an actuary overrule common sense about corporate defined-benefit plans. They just can’t compare to the simplicity, cost, and flexibility of 401(k) plans. He is correct in saying that the employer bears the investment risk in a defined-benefit plan, and that with such a corporate-funded plan, the employee/retiree cannot outlive his money. But that’s the very source of the problem I raised—the potential huge unfunded liabilities corporations (and the federal government) suffer from with these defined-benefit plans. That’s why corporations are switching in droves to defined-contribution plans, such as 401(k) plans. I should also add that 401(k) plans do offer some advantages to employees over defined-benefit plans; for example, they offer the possibility that an individual employee can vastly outperform the extremely conservative investment strategy corporate fund managers traditionally take. Instead of investing solely in blue-chip stocks and bonds, employee investors can often invest in more aggressive growth stocks.

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