Posted on 09/19/2011 5:27:08 AM PDT by Cincinatus' Wife
GALVESTON — Gov. Rick Perry has repeatedly called Social Security a “Ponzi scheme” and said that people ought to control their own retirement money.
But if the social safety net program created in 1935 were eliminated — something President Eisenhower once said would be a politically stupid move — what might take its place?
Perry does not have to look far to see how a privatized Social Security plan might work. Government employees in Galveston, Brazoria and Matagorda counties have controlled their private retirement plan for 30 years. They opted out of Social Security before Congress changed the law in 1983 to prevent others from withdrawing.
Though the private program has its critics — and some say it does not provide all of the important benefits many destitute Americans claim through Social Security — many in these counties consider their system superior.
“It shouldn’t be a pay-as-you-go system, where children and grandchildren are paying for your Social Security,” said Ray Holbrook, a former Galveston County judge who led the charge to opt out of Social Security during his 28-year tenure. “That’s why it’s bankrupt, and that’s why Rick Perry says it’s a Ponzi scheme, which I agree with.”
Perry lauded the Texas counties’ plans when he was promoting his book Fed Up! in 2010, and Herman Cain, also a Republican presidential candidate, mentioned the Texas example in the CNN/Tea Party Express debate last week in Tampa, Fla.
“Governor Perry believes we need to look at all options as we discuss how to fix the current system, which as it stands is financially unsustainable,” said Katherine Cesinger, a campaign spokeswoman.
Almost everyone agrees Social Security will need to be changed in some way to remain solvent. Under the current structure, the Social Security Administration projects that by 2036 the program will be able to meet only 77 percent of scheduled benefits.
In 1981, when Galveston County employees pulled out of the Social Security system, the program was projected to be insolvent by 2010, said Rick Gornto, the designer of the Alternate Plan and president of First Financial Benefits, the company that manages the retirement accounts.
“People in Texas are very independent minded, and they stepped out and challenged the system,” he said.
In the Alternate Plan, retirement benefits are a direct result of employee contributions. In each paycheck, employees contribute 13.9 percent of the their gross pay (6.1 percent from the employee, 7.8 percent from the county) to a private account. First Financial Benefits invests the accounts conservatively, Gornto said. The company guarantees a minimum rate of return of 3.75 percent to 4 percent on the accounts to safeguard employees’ benefits against inflation and severe drops in market rates.
Employees can elect to put their portion of the contributions into riskier investments, like mutual funds and stocks, potentially to generate more interest.
At retirement, employees in the Alternate Plan can choose to take the money in a lump sum, take monthly benefits for a given time period or take a lifetime annuity, with slightly reduced benefits. Social Security is subject to whatever rules the federal government makes, Gornto said, and there is “not a guaranteed promise to pay any certain amount.”
Critics of the Alternate Plan say it is more like a savings program than a social insurance program for all Americans, which Social Security was created to be — particularly for low-wage retirees, widowed spouses and children with deceased parents.
“People forget that before Social Security, there really were poorhouses,” said Eric Kingson, co-director of the coalition Social Security Works.
The General Accounting Office and the Social Security Administration conducted the most current comparative studies of the Alternate Plan and Social Security in 1999. The G.A.O. report noted “fundamental differences in the purpose and structure of the two approaches.”
Both the G.A.O. and Social Security studies concluded that lower-wage workers, particularly those with many dependents, would fare better under Social Security, while middle- and higher-wage workers were likely to fare better, at least initially, under the Alternate Plan.
Americans should not fear radical cuts to Social Security, Kingson said, because the program is politically protected. Americans “contribute to this system; they value it very much,” Kingson said, and they expect a return at retirement. “Any changes that are made have to be made by politicians with that in mind.”
Changing certain rules, like scrapping the cap on Social Security taxation or eliminating Bush-era tax cuts for the wealthy, would help solve the revenue shortfall, he said.
“Less and less money has been subject to Social Security taxation,” Kingson said, because most wage growth has been for high-income employees, who are not taxed for Social Security on earnings above $106,800 a year.
But proponents of the Alternate Plan say individual ownership of retirement benefits offers employees more security.
“You have some kind of control of your money, because ultimately it’s your money,” said Dwight Sullivan, the Galveston County Clerk.
Although both programs offer disability insurance, life insurance and retirement benefits, experts agree the methods and benefits provided by the programs are difficult to compare.
In a hypothetical calculation, Gornto said, an employee who earned $25,000 annually for 40 years could retire with a 20-year payout of $2,297 a month under the Alternate Plan. Under the same circumstances, an employee making $125,000 annually could retire with a payout of $11,490 a month.
Social Security benefits change depending on the yearly adjustment for inflation, the year of retirement, and the age of the worker. But at a maximum, a worker who retires in 2011 at age 66 could receive $2,366 a month in Social Security benefits.
If Congress voted to privatize Social Security, Gornto and Holbrook said they would recommend using a banking model similar to the Alternate Plan, but with one important caveat: They would suggest removing the option to withdraw funds in a lump sum.
“Most people can’t handle a sizable lump sum when they retire, and they end up spending it on a new house and new cars and everything else,” Holbrook said.
The lump-sum option is one of the biggest problems in the Alternate Plan, Kingson said, because “people end up unprotected.” If retirees do not choose the lifetime annuity, they could outlive their benefits and end up wards of the state.
Even Holbrook has outlived his Alternate Plan benefits. When he retired 15 years ago, he decided to receive $1,500 to $2,000 from his Alternate Plan account every month for 10 years. He still has plenty of good years left, but his Alternate Plan account is empty.
Fortunately, Holbrook has other savings and, ultimately, $1,300 a month in Social Security benefits from his 27 years of contributions before his county dropped out of the program.
“It was a mistake to only take it for 10 years,” he said. “It should be over a lifetime, like Social Security."
Nov 4, 2010: CNN - Spitzer and Parker drill Perry on Social Security (Perry brings up the Galveston plan)
Perry OpEd On SS USA Today September 11, 2011: Rick Perry: I am going to be honest with the American people
How Three Texas Counties Created Personal Social Security Accounts and Prospered Across the country, state and local governments are facing huge unfunded liabilities for their employee pension plans. And then there’s Social Security.
But three neighboring Texas counties, which opted out of Social Security 30 years ago by creating personal retirement accounts, have avoided a fiscal train wreck while providing retirees with even more retirement income.
Galveston, Matagorda and Brazoria County employees, many of them union members, have seen their retirement savings grow every year, even during the Great Recession. If state and local governments—and Congress—are really looking for a path to long-term sustainable entitlement reform, they might start with what is referred to as the “Alternate Plan.”
[snip]
More importantly, if a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving children, if any, or a spouse who didn’t work and therefore didn’t establish his or her own benefits). But a worker in the Alternate Plan owns his account, so the entire account belongs to the estate. There is also, among other benefits, a disability benefit that pays immediately upon injury, rather than waiting six months, plus other restrictions, as under Social Security.
And those who retire under the Galveston model do much better than Social Security. For example:
A lower-middle income worker making about $26,000 at retirement would get about $1,007 a month under Social Security, but $1,826 under the Alternate Plan, according to First Financial’s calculations.
A middle-income worker making $51,200 would get about $1,540 monthly from Social Security, but $3,600 from the banking model.
And a high-income worker who maxed out on his Social Security contribution every year would receive about $2,500 a month from Social Security vs. $5,000 to $6,000 a month from the Alternate Plan……………….[more at link]
Funny thing, the folks we pay are not required to participate in the system that we are required to participate in.
Need a better name for it - like Social Security PLUS, Social Security Advantage or Social Security Part-B. You know, jazz it up a bit.
I think the key to this alternative plan is YOU MUST PUT MONEY IN to become a recipient. Aspects of the social security program were turned into a federal welfare program long ago and it is getting worse each year since.
Clinton said that social security was the third rail of politics and a club to beat up Republicans.
Thus the politics of Social Security remain.
Most of the school districts down here have a similar retirement program through the Texas Education Association.
Just as Congress will not be members of ObamaCare -- they will keep their gold-plated health care that their employers pay for.
Odd that. The employers are being told by the staff (who are exempt) that they will pay for a superior, top-of-the-line program for the staff and that they (the employers) will be dumped into an unsustainable, economy busting, inferior plan that they MUST buy.
Changing certain rules, like scrapping the cap on Social Security taxation or eliminating Bush-era tax cuts for the wealthy, would help solve the revenue shortfall, he said.
Sure it would. /S
Sorry, we don’t have a revenue problem.
Congress decided to spend what should have been in trust for the recipients. Thus we have a spending problem not a revenue problem. Unfortunately the problem is now so large that it has finally got the “peoples” attention, and that just might be too late.
Excellent point.
It changes the whole psyche re responsibility about EVERY-thing in one’s life.
Yes, and Texas teachers often take early retirement after they’ve put in the requisite number of years, then get another job that pays into the SS system so they get checks from both systems.
Double-dipping, kinda like military retirees do.
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This is what W wanted to do...but Karl Rove put the brakes on it...that’s why W never followed through.
Yowza! More income then when you are working! Of course, it can't hold a candle to SS.
VERY interesting.
This proves the point about how, socialism fails every time it’s tried.
Follow the money!
Into the government’s pocket OR
Keep it in our pocket and watch it grow.
bump.
How about the Liberty Retirement Plan?
1. The government wouldn't control your money.
2. You wouldn't be giving any of your money to people that have never even had a job, or even illegal aliens.
3.The government wouldn't control your money.
4. The liberals wouldn't be able to threaten seniors anymore.
5. And finally, the government wouldn't control your money anymore.
Obviously, if the government didn't control your money, they couldn't control you. I was a resident in Galveston County when this happened. It was a bold move back then, but it obviously paid off. after about 20 years, CBS did a story on it and showed county clerks retiring driving motor homes. Blue collar workers were retiring with new homes with pools and a vacation to Europe. Chile also copied the plan after decades of socialism and revolutions. It is telling that no one is traveling to Galveston county anymore to follow up on this story. The problem arises when a 22 year old that has never had a job and never paid into the system has a motorcycle wreck and is deemed disabled for life. He/she gets OUR SS money. A father dies and his children gets his SS for another 15 years and has never worked. A child acts up in class and gets on Ridilin and gets payments for life. SS is a different program than a savings plan for retirement. We should have the retirement savings plans for individuals and welfare for the non payers. It would do 2 things. It would show how well a person could do if they work hard and save their money, and show how a person has to go begging and depend on others if you don't work. Their disability may not be their fault, but it shouldn't be a slam dunk to watch a lawyer ad on TV and get your check. A retirement plan is just inherently different than SS. Our problem today stems from people believing they can live on SS alone.
I worked for and saved my retirement money even before a 401K was allowed. SS is an add on I will get when I ask for it. I lived on the idea that SS wouldn't be there when I needed it. To try and live on just that money would be impossible. Our town is full of those people trying to live on $1200 a month and even less. We have met a married couple that gets about $650 a month and lives entirely on that. No plumbing, no heat, no air, nothing. It's mid-evil.
On the workers side, SS started with 16 workers supporting 1 retiree. Today, its 2 workers to 1 retiree. That means if a retiree draws $2k a month, my daughter pays $1k and someone else must pay the other $1k. Just imagine when it gets to 1 worker paying the whole $2k for 1 retiree. After that point, the inevitable conclusion is 1 worker paying for multiple retiree's. The natural result there would be less money for each retiree. If a retiree has trouble living on $1800 a month, wait till he has to live on $1400 a month. Eventually $600 a month.
The lesson,....socialism doesn't work, and have your own retirement plan. My 6th grade teacher taught me socialism doesn't work, so I prepared myself. What do teachers teach today?
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