No Truce With Kings

Here’s an interesting proposal at the American Enterprise Institute’s The American. It’s not much longer than this excerpt so RTWT.

Would You Settle Your Claims on Social Security for 80 Cents on the Dollar? (I Would)

Current headlines read: “Social Security’s Financial Forecast Gets Darker”; “Stress Rises on Social Security.”

Well, yes: but who is surprised?

Certainly not young people, who are rightly skeptical about whether Social Security in the future will be able to give them back the money it takes from them today.

The problem is pretty basic: According to the new calculations of the Social Security Trustees’ 2012 Report, Social Security’s future costs are a lot bigger than its future income. […]

Many observers, considering this insolvency, quickly conclude that you must force Americans to either pay more in Social Security taxes or mandate a cut in their benefits.

But there is another, voluntary alternative. Give people a choice? Imagine that!

I have previously asked, “Would you settle your claims on Social Security for 83 cents on the dollar?”—and answered, “I would—in a heartbeat.”

And here’s another interesting alternative for reforming Social Security. This one’s longer but packed with interesting details so it’s worth your time too.

Social Security by Choice: The Experience of Three Texas Counties

Stock market volatility remains one of the primary objections to switching from the current pay-as-you-go method of funding Social Security benefits to a system of prefunded personal retirement accounts. However, three Texas counties that opted out of Social Security 30 years ago have solved the risk problem.

Galveston County opted out of Social Security in 1981, and Matagorda and Brazoria counties followed suit in 1982. County employees have since seen their retirement savings grow every year, including during the recent recession. Today, county workers retire with more money, and have better supplemental benefits in case of disability or an early death. Moreover, the counties face no long-term unfunded pension liabilities.

If state and local governments — and Congress — are really looking for a path to long-term sustainable entitlement reform, they might consider what is known as the “Alternate Plan.”

The Alternate Plan. The Alternate Plan does not follow the traditional defined-benefit or defined-contribution model. Rather, employee and employer retirement contributions are pooled and actively managed by a financial planner — in this case, First Financial Benefits, Inc., of Houston, which both originated the plan and has managed it since inception.

Like Social Security, employees contribute 6.2 percent of their income, with the county matching the contribution (Galveston has chosen to provide a slightly larger share). Once the county makes its contribution, its financial obligation is done. As a result, there are no long-term unfunded liabilities.