The President has made fixing Social Security his number-one domestic objective, but the fight won't be easy -- in part because of fierce opposition by the AARP, the seniors' lobby, with 35 million members.
The AARP is using an old strategy: trying to scare the wits out of old people. The organization's executives want its members to think that Social Security will be destroyed by offering young people the option of personal accounts.
The President's plan will likely allow workers to put up to four percentage points of what they now pay in taxes into a small number of broadly diversified portfolios of stocks and bonds.
This is hardly radical. Half of American families already own mutual funds, and most AARP members are retirees who don't pay into Social Security anyway, so they won't be exercising the option. But those facts don't stop the AARP from painting a frightening picture that equates investing with casino gambling.
In one ad, labeled "misleading" by the nonpartisan watchdog FactCheck.org, the AARP shows a wild cocoa trading pit with the headline, "Winners and Losers are stock market terms. Do you really want them to become retirement terms?"
Another AARP ad features a man and woman considering the Bush plan and saying, "If we feel like gambling, we'll play the slots."
But the AARP is talking out of both sides of its mouth. It says that stock and bond investing is like playing a slot machine at the same time it promotes stock and bond investing by selling 38 mutual funds to its members and taking a cut from each sale.
As former Sen. Alan Simpson (R-Wyo) once said, "I never saw the AARP do anything that would hurt their business."
Among the AARP funds are far riskier choices than advocates of Social Security reform would ever offer to American workers: for example, a Latin American stock fund, a junk-bond fund, and a fund that holds shares of companies based in such highly volatile markets as Indonesia and Russia.
AARP Services, Inc., the lucrative business arm of the AARP, entered into a deal with Scudder Investments to sell mutual funds to its members as part of a special affinity program. According to a prospectus, Scudder pays AARP an annual fee for the use of its trademark that ranges from .05 percent to .07 percent of assets. That can come to a lot of money. One fund alone, Scudder Growth & Income AARP, manages $5 billion.
The hypocrisy is breathtaking. AARP's website carries solid information about how to invest wisely, but the organization's anti-Social Security ads make investing - even under the tough restrictions advocated by reformers -- look like a game for dumb suckers and out-of-control gamblers.
Ironically, the AARP's professed concerns do not extend to its own choice of mutual funds. Scudder has not enjoyed a reputation for stellar performance in recent years - to put it mildly.
Morningstar, the mutual fund research firm, gives many of the funds mediocre and poor ratings. For example, Scudder's balanced AARP fund, which, since it holds a mix of stocks and bonds, would normally be a good choice for older investors, wins just two stars (below average) from Morningstar out of a possible five. The fund ranks in the bottom 10 percent of its category over the past three years.
Another possible choice for seniors is the AARP Large Company Growth fund, but, since its inception in 2001, it has failed each year to beat the broad market average, the Standard & Poor's 500 Index. The fund gets just two stars from Morningstar and the admonition, "We see no reason to buy it."
The AARP says it "strives to keep?operating expenses below the industry average." But look at an obvious choice: the Scudder AARP fund that mimics the S&P 500. According to Morningstar, the AARP fund charges a whopping .40 percent per year in expenses - more than twice as much as similar Fidelity and Vanguard funds. "This shouldn't be your first S&P index fund choice," says Morningstar. No kidding!
Long-term stock and bond investing is not gambling. In fact, it's the opposite. Since 1802, stocks have returned an annual average of 6.8 percent, after inflation, and research shows that the longer you hold shares, the lower the risk. The folks who run the AARP know this. Instead of scare tactics, they should offer their members better services - as well as more honesty and less hypocrisy.