We should also carefully consider issues like how fees should be structured and how often investors should be permitted to switch investments. It is important to consider whether a fee structure might unintentionally reward money managers who convince workers to make frequent investment switches. Decreasing the number of times investment switches would be permitted may curb excessive switching, but it would also limit investors' flexibility. An appropriate balance should be struck between permitting flexibility, but discouraging excessive switching. Similarly, permitting greater flexibility could have the unintended effect of encouraging investors to try to take advantage of short-term market fluctuations rather than managing their account with a view to the longer term.
Small accounts present a unique set of issues.
Many plans propose diverting two percent of a worker's salary to an individual account. For smaller accounts, we must remember that there will be a break-even point. We should be mindful that below some threshold account size, administrative fees will outpace investment returns. Government Investment of the Trust Fund Let's now turn to some of the issues that should be analyzed in any plan considering government investment of some portion of the trust fund into the market. Proponents of this approach point out that administrative costs would be lower, and market risk would be spread more broadly, than under a system ofindividual accounts.