Tuesday, February 08, 2005
Bush's Privatization Plan Will Not Work
Bush's Privatization plan for Social Security will not work. Bush's plan would allow workers to put Social Security or retirement money into retirement accounts that invest in private instruments, such as stocks and bonds. I know this because this plan has already been put in action, by President Ronald Reagan, and it does not work. The plan that does not work, and was mentioned by Bush himself at the State of the Union speech, is the Thrift Savings Plan for federal employees.
I am a federal employee about to retire. I have put money into the Thrift Savings Plan, and for me, under the old government system (Civil Service Retirement System, or CSRS), it is an extra that allows me to earn interest on my money tax-free, and further, the yields on the funds in the Thrift Savings Plan are good. However, the Thrift Savings Plan was intended to be part of the new Federal Employee Retirement System (FERS) that went into effect in the Orwellian year of 1984. The old system consisted of a government annuity and the Thrift Savings Plan, without contributions from the government. The annuity pays close to 2% per year of service of the worker's highest salary (actually an average of the highest three years) as retirement pay.
The new system consists of a smaller annuity, only 1 or 1.1% per year of service of the high three average. Instead of 60%, the plan would pay only 30%. There are two other parts to FERS, namely Social Security and the Thrift Savings Plan. CSRS employees don't get Social Security credit for federal service; FERS employees do. However, Social Security does not kick in until age 66 or thereabouts, or 62 with a reduced annuity. The Thrift Savings Plan is much better for FERS employees. You can contribute twice as much, and the government matches about half of your contribution. But that plus Social Security do not make up for the loss of nearly half of the main annuity. I would now get thousands less per year under the new system. They offered me a chance to convert to FERS in the 1980s. I analyzed the situation and rejected the new plan. Government planners expected 40% of employees to convert to FERS; instead only 2% converted. I can see why.
And I think this Bush plan is the same way. It would mirror FERS; it would force people to take this FERS instead of the old system, unless they are at least 55 and about to retire anyway. The government hypes the private part, just as with FERS with the Thrift Savings Plan, hoping people don't notice that basic Social Security benefits would be based strictly on inflation instead of on actual growth of paychecks; due to promotions, the latter is usually greater by about 3%. This plan does not do the public any favors, and it is sneaky. Instead, if retirement of baby boomers threatens the system, a better idea would be to announce a straight decrease in benefits or increase in taxes, and maybe even consider allowing employees to transfer years of service from one place to another to encourage people to work longer.
I hope this measure fails.
I am a federal employee about to retire. I have put money into the Thrift Savings Plan, and for me, under the old government system (Civil Service Retirement System, or CSRS), it is an extra that allows me to earn interest on my money tax-free, and further, the yields on the funds in the Thrift Savings Plan are good. However, the Thrift Savings Plan was intended to be part of the new Federal Employee Retirement System (FERS) that went into effect in the Orwellian year of 1984. The old system consisted of a government annuity and the Thrift Savings Plan, without contributions from the government. The annuity pays close to 2% per year of service of the worker's highest salary (actually an average of the highest three years) as retirement pay.
The new system consists of a smaller annuity, only 1 or 1.1% per year of service of the high three average. Instead of 60%, the plan would pay only 30%. There are two other parts to FERS, namely Social Security and the Thrift Savings Plan. CSRS employees don't get Social Security credit for federal service; FERS employees do. However, Social Security does not kick in until age 66 or thereabouts, or 62 with a reduced annuity. The Thrift Savings Plan is much better for FERS employees. You can contribute twice as much, and the government matches about half of your contribution. But that plus Social Security do not make up for the loss of nearly half of the main annuity. I would now get thousands less per year under the new system. They offered me a chance to convert to FERS in the 1980s. I analyzed the situation and rejected the new plan. Government planners expected 40% of employees to convert to FERS; instead only 2% converted. I can see why.
And I think this Bush plan is the same way. It would mirror FERS; it would force people to take this FERS instead of the old system, unless they are at least 55 and about to retire anyway. The government hypes the private part, just as with FERS with the Thrift Savings Plan, hoping people don't notice that basic Social Security benefits would be based strictly on inflation instead of on actual growth of paychecks; due to promotions, the latter is usually greater by about 3%. This plan does not do the public any favors, and it is sneaky. Instead, if retirement of baby boomers threatens the system, a better idea would be to announce a straight decrease in benefits or increase in taxes, and maybe even consider allowing employees to transfer years of service from one place to another to encourage people to work longer.
I hope this measure fails.
