January/February 2005 IBEW Journal
A lot of people groaned at the sight of their 401(k)
statements during those recessionary years of 2000-2002.
Hard-earned income put away for a brighter retirement
was not growing with interest. Their accounts were
actually losing money. An overhauled Social Security
system with personal investment accounts means retiree
income would depend on the ups and downs of the market.
Because the stakes are so high, private retirement
accounts would require a higher level of investment
understanding than many individuals possess. Terms
like asset allocation, market capitalization and diversificationfundamentals
of investment decisionsare not second nature to most
people. Mistakes in investment strategy could result
in reduced market returns or financial ruin. A commonly
repeated truism in the investment community is that
people spend more time planning their vacations than
their own retirement.
"Many people dont have the time, training and
expertise to select stocks and mutual funds," Reidenbach
said. "While most investors simply chase investment
results and dont have a clear investment strategy,
professionals have reams of research and consultants
to assist people in their portfolio selections."
retirees would not be guaranteed any returns if they
place their money in stocks and bonds, Wall Street
investment firms stand to make billions. What is now
a federal agency would be transformed into a cash-generating
profit machine for financial sector money managers
who would be generating profits through fees and commissions.
"Theres no excuse for taking a gamble to invest
in private accounts and creating budget shortfalls
as a time when its clear our pension plans are under
siege," IBEW International Secretary-Treasurer
Jerry OConnor said. "One of the things we can
do is stand firm. Individual retirement accounts are
not in the best interest of most Americans."
recent analysis by The Wall Street Journal
found half of elderly Americans rise
above the poverty line only because of
Social Security checks."
Social Security in Perspective
Despite rhetoric that Americans can expect to become
increasingly frantic in the coming months, Social Security
is not broken. Actuaries estimate that Social Security
can meet all of its anticipated obligations until at
least 2042, and possibly 2054. At that time, it is
expected that the system will still have enough income
to pay out around 80 percent of scheduled benefits.
The Congressional Budget Office has concluded that
Social Security is more financially sound today than
throughout most of its 70-year history.
"This is a problem thats well into the future," Reidenbach
said. "But not only is it imperative for us to
address Social Securitys funding shortfalls, we are
obligated to do so in a safe, prudent manner. Social
Security should remain an economically viable, self-perpetuating
source of security for millions."
Congress could also implement changes to strengthen
the current structure of Social Security. In the past,
proposals have been made to change the law to allow
Social Security administrators to invest a portion
of its trust fund in low-risk stocks or stock funds.
Current law only allows investment in safe but low-yield
treasury securities. Congress could raise the cap on
the maximum level of income, currently $88,000, subject
to Social Security taxes. Some have proposed raising
the retirement age even further, but the IBEW, like
many other unions and organizations, opposes raising
the retirement eligibility age, given the physically
demanding nature of much of the work members perform.
Such changes are not without precedent. Since 1935,
Congress has tweaked Social Security to account for
changing demographics. In 1983, it phased in a gradual
raising of the retirement age to 67 to receive full
benefits and increased contribution rates, allowing
the establishment of a trust fund in anticipation of
the baby boom retirements occurring now.
AARP, the largest and most influential association
representing retirees in the United States, has announced
its opposition to any plan for Social Security privatization.
In a letter to members, AARP President Marie Smith
said such a move would "make the problem worse,
"The changes needed dont have to be drastic,
and the guarantee Social Security provides is one worth
strengthening, not replacing," Smith said. "Taking
some of the money that workers pay into the system
and diverting it into newly created private accounts
would weaken Social Security and put benefits for future
generations at risk."
President Bush announced in December that he would
not advocate raising payroll taxes to pay for the transition
to private accounts.
A Promise to Keep
Americans value Social Security. A post-election survey
by the Institute for Americas Future found that only
31 percent of respondents said that individuals should
be allowed to invest a portion of their Social Security
funds in private retirement accounts.
"A lifetime of hard work should not be rewarded
with a gold watch and a ticket to the races," President
Hill said. "Social Security should be available
to everyone, not just the lucky ones."