individuals like you who believe in individual liberty and free-market solutions d envelope to make your tax-deductible contribution to this effort today.
Security system has serious W h e r e i n t h e W o r l d C a n Y o u F i n d E c o n o m i c F r e e d o m ? p r o b l e m s t h a t w i l l g r o w w o r s e w i t h t i m e . ” S e n a t e M i n o r i t y L e a d e r H a r r y R e i d ( D - N e v . ) s a i d o n W e d n e s d a y that all 44 Senate Democrats were
George C Leef . united against the President’s plan
to reform Social Security. Without knowing any details, Reid told reporters, “President Bush should forget about privatizing Social Security.” “It will not happen,” he added.
But privatized Social Security has been a fact of life for municipal employees in Galveston County, Texas, for nearly a quarter century. Local government workers voted overwhelmingly in 1981 to opt out of Social Security in favor of a locally controlled system that has since been widely described as a phenomenal success.
Under federal law at the time, municipal workers had the option of not participating in the Social Security program, replacing it with private retirement accounts. The private system is subject to regular payroll deductions and employer matches, essentially mirroring Social Security tax withholding and employer match provisions.
“There are a number of [county employees] that are strong advocates and say it’s really a very, very good, solid, strong, financially and fiscally strong program that is for the benefit of county employees far in excess of what Social Security would be,” Galveston County Legal Department Director Harvey Bazaman told Cybercast News Service.
Under Galveston’s “Alternate Plan,” the county withholds approximately six percent of each employee’s salary for retirement. That money, along with a partial match by the county, is invested in personal accounts for each participating employee. The remaining county match covers the cost of disability and life insurance policies for employees, which also pay benefits much higher than those offered by Social Security.
While the employee-employer funding formulas are nearly identical under both Social Security and the Galveston Alternate Plan, the results are very different.
The U.S. Treasury Bonds purchased with money from the Social Security “trust fund” pay approximately two percent. But for the period from 1982 through 1997 the rate of return on funds invested in the Galveston plan has averaged 8.6 percent, a return more than 400 percent greater than Social Security.
Data from First Financial Benefits, which administers the GalvestonAlternate Plan, shows that county workers earning slightly more than $17,000 a year can retire at age 65 with a monthly payment of $1,285 compared with $782 a month under Social Security.
Due to having more money withheld and the effects of compounding interest, higher income employees in Galveston see even larger benefits under the Alternate Plan. Workers earning $51,263 a year could retire at 65 with a monthly benefit of $3,846,
while the same worker participating in Social Security would receive $1,540 each month.
Even the relatively low “guaranteed rate of return” in the Galveston plan roughly doubles the rate of return for Social Security. Funds already invested in annuities have a guaranteed yield of 3.75 percent, according to Bazaman. As for money being placed into private accounts today, Bazaman said the rate is slightly higher at 4.24 percent.
“They have never lost money. They have gone through double recessions in the 1980s, recessions in the 90s, and a tech boom and bust in the 1990s and into 2000,” said Charles Jarvis, chairman and CEO of USA Next-United Seniors. “They’ve gone through another recession, an attack on this country, and wars in Afghanistan and Iraq, yet they have steadily provided income for people.”
The Galveston County, Texas Alternate Plan enacted in 1981 with the approval of 78 percent of local employees proved popular locally. By 1983, local government workers in three nearby municipalities — Brazoria and Matagorda Counties, and Texas City — also voted to quit Social Security in favor of private retirement plans.
Amid growing enthusiasm for an alternative to Social Security, the Democrat-controlled Congress voted in 1983 to end the provisions giving municipal workers the option to leave the federal system.
The Social Security Administration estimates that,
FACTS & OPINIONS
continued on page 6 Public Interest Institute, May 2005