Reforming Social Security (The Texas Model)

From this weekend's WSJ, an op-ed by Merrill Matthews, a resident scholar with the Institute for Policy Innovation in Dallas, presented here in stand-alone newsbite format:

* HERE'S THE PROBLEM FOLKS... THE FOLLOWING INFO IS KNOWN TO ME AND PERHAPS A FEW MILLION PEOPLE OUT OF A NATIONAL POPULATION OF WHAT... 307 MILLION? IN OTHER WORDS... THE OLD "TREE FALLING IN A FOREST WITH NO ONE TO HEAR IT" QUANDARY. (*SHRUG*)

To highlight the problems facing Social Security, Texas Gov. and Republican presidential hopeful Rick Perry is pointing to three Texas counties that decades ago opted out of Social Security by creating personal retirement accounts.

* THREE... DECADES... AGO...

Now, 30 years on, county workers in those three jurisdictions retire with more money and have better death and disability supplemental benefits.

* WAIT! THERE'S MORE!

And those three counties - unlike almost all others in the United States - face no long-term unfunded pension liabilities.

* BUT, NO, FOLKS... THIS ISN'T THE SORT OF INFO THAT REPORTERS, EDITORS, AND MAINSTREAM PUNDITS - LET ALONE OUR SCHOOL TEACHERS AND EVEN COLLEGE PROFESSORS (EVEN AT THE GRAD LEVEL!) CARE TO BRING TO THE ATTENTION OF THE AMERICAN PEOPLE.

(*GNASHING MY TEETH*) (*LITERALLY GROWLING*)

Since 1981 and 1982, workers in Galveston, Matagorda and Brazoria Counties have seen their retirement savings grow every year, even during the Great Recession.

(*PURSED LIPS*) THE SILENCE IS DEAFENING, IS IT NOT?

The so-called Alternate Plan of these three counties doesn't follow the traditional defined-benefit or defined-contribution model. Employee and employer contributions are actively managed by a financial planner - in this case, First Financial Benefits, Inc., of Houston, which originated the plan in 1980 and has managed it since its adoption. I call it a "banking model."

As with Social Security, employees contribute 6.2% of their income, with the county matching the contribution (or, as in Galveston, providing a slightly larger share). Once the county makes its contribution, its financial obligation is done - that's why there are no long-term unfunded liabilities.

(*LITERALLY JUMPING OUT OF MY CHAIR TO CHEER AND APPLAUD*)

The contributions are pooled, like bank deposits, and top-rated financial institutions bid on the money. Those institutions guarantee an interest rate that won't go below a base level and goes higher when the market does well. Over the last decade, the accounts have earned between 3.75% and 5.75% every year, with the average around 5%.

* SOUNDS FRIGG'N REASONABLE TO ME!

The 1990s often saw even higher interest rates, of 6.5%-7%. When the market goes up, employees make more - and when the market goes down, employees still make something.

* FOLKS... THE FACT THAT THIS ISN'T TAUGHT IN SCHOOL AND IF RARELY NOTED BY THE MAINSTREAM MEDIA OR EVEN INDIVIDUAL MEMBERS OF CONGRESS... THIS IS YET MORE EVIDENCE THAT ULTIMATELY... VIOLENCE TO OVERTHROW "THE ESTABLISHMENT" IS THE ONLY VIABLE WAY TO BEAT THEM AND RECLAIM SANITY FOR OUR SOCIETY.

But not all money goes into employees' retirement accounts. When financial planner Rick Gornto devised the Alternate Plan in 1980, he wanted it to be a complete substitute for Social Security. And Social Security isn't just a retirement fund: It's also social insurance that provides a death benefit ($255), survivors' insurance, and a disability benefit.

Part of the employer contribution in the Alternate Plan goes toward a term life insurance policy that pays four times the employee's salary tax-free, up to a maximum of $215,000. That's nearly 850 times Social Security's death benefit.

* AND AGAIN... EVEN IF SOME OF YOU HAVE BEEN MADE AWARE OF THIS INFORMATION PRIOR TO READING THIS NEWSBITES... YOU KNOW THAT THE AVERAGE AMERICAN - INCLUDING THE AVERAGE PROFESSIONAL... THE AVERAGE COLLEGE EDUCATED AMERICAN... EVEN THE AVERAGE MCMANSION OWNER WHO DRIVES A LATE MODEL MERCEDES OR SIMILAR VEHICLE... HE OR SHE IS CLUELESS

* FOLKS... IT'S NO ACCIDENT THAT THE AMERICAN PEOPLE ARE KEPT CLUELESS!

If a worker participating in Social Security dies before retirement, he loses his contribution (though part of that money might go to surviving children or a spouse who didn't work). But a worker in the Alternate Plan owns his account, so the entire account belongs to his estate.

(There is also a disability benefit that pays immediately upon injury, rather than waiting six months plus other restrictions, as under Social Security.)

* AND YET WHILE THESE GOVERNMENT WORKERS IN THESE THREE TEXAS COUNTIES PROSPER - AND AS TAXPAYER IN THOSE COUNTIES ESCAPE THE WEIGHT OF EVER INCREASING PENSION FUND INDEBTEDNESS WHICH FALLS ON THE AVERAGE AMERICAN'S SHOULDERS DUE TO MISMANAGEMENT, CORRUPTION, AND JUST PLAIN INCOMPETENCE - THE VAST, VAST MAJORITY OF THE AMERICAN PEOPLE FACE THE NIGHTMARE OF THE PONZI SCHEMES KNOWN AS THE FEDERAL SOCIAL SECURITY PROGRAM AND KNOWN AS (MOST) STATE PENSION PLANS.

Those who retire under the Texas counties' Alternate Plan do much better than those on Social Security. According to First Financial's calculations, based on 40 years of contributions:

• 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.

• 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 versus $5,000 to $6,000 a month from the Alternate Plan.

* ALL WITHOUT SCREWING THE TAXPAYER OVER... WITHOUT LEAVING OUR KIDS AND GRANDKIDS TO CLEAN UP THE FINANCIAL MESS THAT POLITICIANS HAVE MADE!

The Alternate Plan has demonstrated over 30 years that personal retirement accounts work, with many retirees making more than twice what they would under Social Security. As Galveston County Judge Mark Henry says, "The plan works great. Anyone who spends a few minutes understanding the plan becomes a huge proponent."

The Alternate Plan could be adopted today by the six million public employees in the U.S. - roughly 25% of the total - who are part of state and local government retirement plans that are outside of Social Security (and are facing serious unfunded liability problems).

Unfortunately this option is available only to those six million public employees, since in 1983 Congress barred all others from leaving Social Security.

(*PURSED LIPS*)

If Congress overrides this provision, however, the Alternate Plan could be a model for reforming Social Security nationally. After all, it provides all the social-insurance benefits of Social Security while avoiding the unfunded liabilities that are crippling the program and the economy.

* FOLKS... HERE'S THE KEY POINT... COMING UP...

If the presidential candidates, including President Obama, stop bickering about who wants to "save" or "destroy" Social Security and begin debating reform constructively, examining the Alternate Plan would be a good place to start.