President Swordsman Saves Social Security

Or just call it Social Insecurity.

Or So-So Security.

Either way.

Now, I know many people want to privatize SS. That doesn't work, and we'll see why in a moment. But first, let's define the problem.

Fully 51 percent of Americans own no stocks of any kind. They depend fully on pensions for their retirement, and 35% of all Americans have no retirement other than Social Security. It used to be that you received a pension normally. That has not been true for the majority of workers since about 1990. I honestly think many retirees do not understand this.

Well, you say, an employer today can buy into a defined-benefit plan, and that's true. In 1980, 83% of workers who had a private pension had a defined-benefit plan. Now that figure is 38%. Ooops. Defined-benefit plans, like corporate health care plans, were demolished in part by foreign competition. Many employees who thought their golden years would be secure (and who had agreed to lower wages over the years to fund their pensions) suddenly found that the companies they worked for were not going to keep their promises.

But wait, you say, the Pension Benefit Guaranty Corporation exists to ameliorate this problem. Um...no. They only pay 30% of the agreed pension.

Of course, the people involved can just go back to work, right? No, not if they're elderly, no they can't.

Plus, there's these cool little traps that so far are legal. A company can tell you that if you don't retire by a certain date, you lose your pension. Too bad if you need the wages and are not yet eligible for Medicare. Sucks to be you.

Underfunding of pension plans, as estimated by the PBGC, is as high as $600 billion. And the PBGC insures 44 million Americans.

Well, okay, what about Defined-Contribution Plans, such as 401(k). That works well, right? Well, no, not if people aren't contributing. 17% of people aren't putting in automatic deductions and another 21% of eligible workers are not using 401(k) plans at all. Why? I can tell you why. They need the money for living expenses. Among people earning $40,000 to $60,000, the average contribution to a 401(k) was 1% of wages. Besides, looked at your 401(k) lately? Doesn't it rock? No?

401(k)s rule if you're already rich and have a nice fat salary. It's really a tax shelter for the affluent. Rules allow a million-dollar defined contribution account to be paid out across a 44 year period from the participant's first withdrawal at age 70 until the last dollar is paid out to the children. During this period, assuming an 8% growth rate, this generates a total of $11 million in distributions.

Gets worse. 32% of these funds with 401(k)s for middle income Americans hold no stocks at all. They are invested in money market funds, which are safe but provide low yields and do not compound interest. Worse than useless. A lot of companies require their employees to put their 401(k) investments into company stock. Great. What happens if the company goes under? Also, 45% of those with 401(k)s cash them out when they change jobs. Bye bye compounding those investments.

Most people now have defined-contribution plans, up to 90% of all workers are eligible.

If you are between 45 and 54, you'd better have saved $169,000. The average person in this age range has accumulated $49,000. If you are between 55 and 64, you'd better have $314,000 set aside. The average though is $60,000.

But wait, but wait, I hear from the peanut gallery, I should be able to invest my SS payments and etc in the stock market and really get rich so I can retire a millionaire!

Um...let's check that out. Remember the 1987 stock market crash? 1929? Yeah, I know. You think that on average that stocks return between 7 and 7.5 percent annually. Yet....no one has figured out how to transition between the current system and a privatized system, plus check this out:

It wasn't until 1953 that stocks returned to their 1928 level. If you retired between 1929 and 1952, you basically had to live on SS. The 1968 peak was not seen again until 1972. Better, but not exactly pleasant. If you planned to retire in 1968 or 1969, you might have had to work 5 or more years, adjusting for inflation (which was rife at the time). If you even retired in 1979, you got screwed pretty well. It's a roll of the dice.

Yeah, I know, everyone in Chile got rich when they privatized their system. Just look at this fawning piece by the Cato Institute: www.cato.org/dailys/12-17-97.html.

This is where this meme comes from. This guy Jose Pinera, who has written about this from 1996 through 2006. Yeah, one guy. Who was in bed with Pinochet. His brother lost the 2006 elections because the system wasn't all that rosy. Hmmm....haven't heard much about Chilean Social Security lately have we? Here's why: economistsview.typepad.com/economistsvi ew/2006/01/chile_confronts.html and http://www.nytimes.com/2006/01/10/international/americas/10chile.html?ex=1294549200&en=597516f5ad9fbb0a&ei=5090&partner=rssuserland&emc=rss.

So much for that.


Then we also have the claim that Social Security was only supposed to be temporary and was supposed to be phased out in 1942. Which is incorrect. It was supposed to be phased into effect in 1942. Careful reading of the actual original Social Security Act, Section 202 (A) states:

"Every qualified individual (as defined in section 210) shall be entitled to receive, with respect to the period beginning on the date he attains the age of sixty-five, or on January 1, 1942, whichever is the later, and ending on the date of his death, an old-age benefit (payable as nearly as practicable in equal monthly installments) as follows:"

Which means that citizens could start receiving benefits in 1942, not that the program ended in 1942.

In fact, Sections 801 and 804 specifically detail payments after 1948 and set no final date. http://www.ssa.gov/history/35act.html



So what do we do to fix our pensions?

1. Mandatory enrollment into 401(k) plans for all workers. You decide how much you want to contribute, just like now.

2. Use the consumer price index to perpetually calculate the cost-of-living increases.

3. Actually fund the Pension Benefit Guaranty Corporation. What a concept.

4. Require corporations to close shortfalls in their pension plans.

5. Stop lump-sum payments to pensioners of all the assets in their defined-contribution account if a company's pension fund assets fall below 70% of its obligations.

6. Replace the federal tax exclusion for 401(k) plans and IRAs as well with a direct federal matching program worth the same for all Americans, of course, going up as they save more.

7. Means test Social Security.

8. Take salary caps off. If people want to work while getting Social Security, let em.

9. Stop companies from breaking promises made to workers by arbitrarily changing plan rules. They made the contract and it should be enforcable in court.

10. Stop companies from breaking pension promises to older employees by their selling off of divisions.

11. Stop companies from breaking pension promises to older employees by reclassifying them.

12. Stop companies from breaking promises to employees about the value of their company’s stock. This was WorldCom's scam.

And, if privatization rocks so much, I want to see all the people who want to vote for it in Congress first pass a law that all their own savings can be privatized...