Unfortunately, the US social security system has never been a funded pension system, though I understand an early proposal for it did have it as such. It has always been a pay-as-you-go system - really just an intergenerational transfer, not a pension in the same sense as a defined benefit plan at work. It is, in fact, old age insurance, not a pension with defined benefits. As a participant in social security, you have no defined benefit that you are legally owed. You pay into the system to fund current retiree's benefits (with a little left over for now that Al Gore pretended went into a "lock box") and when you retire, if you make it to retirement, you get whatever congress decides to pay you, funded by then-current workers.
The big current surpluses we've had of late, BTW, are a relatively recent result of the same demographic phenomenon that will lead to big shortfalls in the future - that is, the baby boom. And these surpluses have never been set aside in a "lock box". They have always been spent, with the treasury issuing interest bearing IOUs to the SS trust fund.
BTW, to create a fully funded system now would require little more than for the government to put enough government bonds into the trust to equal the present value of future net benefits. Essentially, they would simply be recognizing an existing, off the books debt - if it really was a debt and not just a vague, implied promise. Then new employee and employer contributions would go into the trust and be used to purchase new securities, with contributions set at a level sufficient to keep the system fully funded.
But even then, all that's really accomplished is that you've recognized the debt on the books. The trust still only owns IOUs from the government. The trust will have to collect on those IOUs to pay your benefits down the road, so the treasury will either have to raise revenues elsewhere or print money to pay you.
An alternative would be to let the trust fund hold things other than these IOUs, effectively treasury securities, investing as would CALPERS or other defined benefit pension plans in a variety of assets. But that has it's own potential - no, likely pitfalls. Do you really want an arm of the US government, subject to all the whims of congress and pressures of interest groups, investing in stocks, corporate bonds, real estate, etc.? I don't.
Another alternative would be to turn it into a defined contribution plan where each participant owns the assets funded from his or her contributions. The participant could then be given the option of whether to hold treasuries or something else - say, broad-based equity or debt mutual funds. It would essentially become a giant 401k or 403(b) plan. The battle among money managers to get their mutual funds eligible for purchase in the plan could be a major mess of lobbying and such, but it's certainly better than having congress meddling in the investment management decisions of a trustee agency.
If you're worried about participants' market risk, you could mandate some range of investment mixes that makes individual accounts more liquid as the participant approaches retirement - e.g. reducing equity and increasing debt and money market shares of the portfolio.
But then, if you're going to do all that, then why not just let individuals put the money into their own 401k, IRA or other retirement account? Give people a choice of the public system or a private one, making participation in one or the other mandatory if you feel people must be forced to do what's in their best interest.
Nah. Can't have any of that. Dems insist on preserving the current broken system. |
