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January/February 2005 IBEW Journal

(First in a Series)

It was a simple idea that enveloped generations of Americans in a retirement of security. No longer would working men and women face economic uncertainty in their waning years, wondering whether disease or financial misfortune would leave them destitute, a burden upon their children or society. Social Security would be insurance against lifes risks: a reliable, monthly base income calculated on age, salary and the number of years in the work force.

Social Security has been a promise and a fair deal for millions of Americans since it began in 1935. In exchange for payroll taxes withheld from each paycheck, workers understood the government would pay them a benefit upon retirement.

But now, the most popular government program ever created is on the table for discussion and possible radical change, put there by President George W. Bush. President Bushs initial plan to restructure Social Security was derailed by the September 11 attacks and the war in Iraq. Now, with a second term in hand and a perceived supply of political capital, he has made reforming Social Security the centerpiece of his domestic agenda.

Social Security promises to be the burning economic issue in the United States for the next two years. The popular program was once considered politically untouchable, but now President Bush and many of his supporters think that sentiment among the public, especially younger workers, may have changed enough to make changespackaged under the label of reformpossible.

This issue of the IBEW Journal went to press before the President announced his final proposal for changing Social Security. According to press reports, the key elements of his plan will be allowing workers to divert part of their payroll taxes into private accounts and changing the formula under which benefits are calculated. The impact of these and other changes on retirees, especially retired working people, would be huge.

This article is the first of several that will examine the Social Security system and discuss proposed changes.

Social Security
Through the Years

Even for those who have private savings or pensions, Social Security is a vital source of income. To many, Social Security is considered the third and most important leg of the three-legged stool upon which a stable retirement rests. The other "legs" consist of personal savings and employer-provided pension plans. From age 65 on (phasing in at higher ages fro those born post-World War II), recipients receive a fixed, lifelong, inflation-adjusted monthly check. (Social Security is also a disability and life insurance program, with about a third of its benefits going toward those purposes.) It is the largest source of retirement income for all but the wealthiest Americans.

"Social Security is the only one of the three legs that is both guaranteed by the government and indexed for inflation," said IBEW International President Ed Hill. "Social Security forms the cornerstone of almost everyones retirement in the United States."

Conceived during the Depression to protect workers from economic disaster in old age, Social Security is widely viewed as the cornerstone program of the New Deal of President Franklin D. Roosevelt. Social Security is given credit for virtually eliminating the grinding poverty that had been the fate of many elderly Americans. A recent analysis by The Wall Street Journal found that half of Americas elderly rise above the poverty line only because of Social Security checks.

St. Louis Local 633 retiree DeForrest Cline said he remembers the skepticism among his coworkers at the time that Social Security was implemented. "All the middle aged people said they would never collect a dime on that," said Cline, who is 86. "They couldnt be happier now."

Having bargained for retiree pensions, many IBEW members face retirement with more financial resources than the population at large. But a dwindling number of employers offer pensions; even those who do are having trouble fulfilling that obligation to workers.

"With Social Security, I can buy my medicine and still eat," said retired Local 11 member Robert Armstrong. "Its not really a luxury. It enables me to pay the electric bill."

That was the idea behind Social Security. Arthur Altmeyer, one of Social Securitys architects, described it as providing an individual "some measure of protection when he is tossed about by economic forces beyond his control." In the early years of the 21st century, there exists at least as much insecurity as when the program began. Today, health insurance and Medicare do not insulate the elderly from rising health care costs. In fact, a December study released by the Kaiser Family Foundation concluded that retirees who receive health benefits from former employers saw their premiums increase by an average of 25 percent in 2004. Housing, medication, taxes, food and utility costs are all expenses that do not cease at retirement. Consequently, American workers are always expected to have some additional savings to maintain their standard of living in retirement.

Armstrong, 77, said he is fortunate that 40 years in the trades earned him a lifestyle that allowed he and his wife to raise seven children and retire in relative comfort. "I sure consider myself lucky as retirees go," said Armstrong, who lives in Ramona, California. "I dont want Mr. Bush messing with Social Security."

What are personal retirement accounts?

President Bush proposes to replace part of the current Social Security system with personal investment accounts. Such a privatization plan would allow individuals to direct the portion of their payroll (FICA) taxes that go into the Social Security trust fund into investment vehicles of the persons own choice.

To accomplish this overhaul, the administration has acknowledged the need for what it calls "up-front transition financing." These up-front costs have been estimated at between $1 and $5 trillion. The $7.5 trillion national debthigher than ever and growing daily from the cost of two wars, upper-bracket tax cuts and a yawning trade deficitwould be further exacerbated. Heaping debt upon debt is already starting to erode international confidence in the dollar; such immense borrowing for Social Security could lead the United States into an economic tailspin.

The loss of guaranteed Social Security benefits would be a striking blow to workers. Although benefit cuts would be phased in over time, IBEW Pension Benefit Fund Director Larry Reidenbach said to make up for the loss of income, an individual would have to save an additional $250,000 to replace Social Security. But that would be unlikely for most Americans, who are not known for their propensity to save. "Most people are not saving anywhere near that, period, much less more to replace Social Security," he said.

Right now, Social Security is efficiently operated, with administrative costs at less than 1 percent. Privatizing would certainly increase the costs of running the program. About 15 cents on every dollar paid out in benefits goes to administer Englands private retirement accounts program.

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