What "inequities" have you been subjected to, Mr Hickey?

Middle income earners are subsidizing lower income earners. Payback is not related to pay in. Short timers get a disproportionate share.

To my knowledge, public employee retirement programs have no such social equalization.

"Short timers get a disproportionate share."

How so?

Use the calculator at:
Web Link to test different scenarios.

Maybe I'm missing something. I notice some differences, but it seems far from INEQUITIES and "Short timers get a disproportionate share."

What am i missing that has you so rattled, Jack? Or are you just branching out from Sequoia?

Original post:
How do public employees escape the inequities of the Social Security system to which most of us have been subjected? Why do taxpayers have to foot the bill for investment losses incurred by CalPers and other public employee retirement funds?

The problem is with the public employee pension system. The City of Palo Alto is considering a new pension idea which would rely in part on Social Security. Most people working in the private sector are not aware that many public employees are not enrolled in the Social Security System. Why are government employers allowed to avoid Social Security? Social Security has built in progressivity like the income tax. That is where the inequity lies.

Jack: are you saying that a progressive tax system, like we've had for the last century and has helped create the greatest middle class ever, is where the inequity lies?

And therefore Social Security, due to components you perceive as progressive is also "where the inequity lies"?

One can easily argue that SS is NOT progressive, but in fact has one of the most REgressive taxes in our country.

While I never have been and never will be a fan of the Social Security system, that is not the issue here. It would be more fair if all those highly paid public employees were subjected to that system. Or, alternatively, none of us!

Well, I'm no fan of Reagan doubling payroll taxes, in what was the largest middle class tax hike ever.

And I'm no fan that payroll taxes are capped around $100,000 in income -- quite regressive. Remove that cap and Social Security becomes funded for a century.

So: I'm to take it that your two rhetorical devices at the start of this post should be taken as a different message, perhaps: "My name is Jack and I detest almost everything about Public Employees. And that darn Sequoia district too."

Their have been more than 130 visits to this topic. Surely someone out there can post an on topic contribution.

Do you think public employees should be subjected to Social Security Taxes?

Factoid in support of my "inequities" reference from: Web Link
"Social Security benefits are intended to replace only a percentage of a worker’s pre-retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent."

Public employee pension plans have no "redistribution of the wealth" component.

Jack: what positive things, if any, can you say about our Public Employees?

anything?

Are you the guy that ran against Lantos a couple times? for supervisor? governor? some other positions?

I have worked for the state of california (caltrans) for 35 years this fall. Like every other state worker(almost 200,000 of us) since day 1, I contribute both to Calpers and social security every month. So Jack, what is this nonsense you are talking about?

jerryskid, thank you for the information. Sorry if my initial post "How do public employees escape the inequities of the Social Security system..." was not explicit enough. My later post,
"Most people working in the private sector are not aware that many public employees are not enrolled in the Social Security System."
It was the City of Palo Alto and their proposal to include Social Security as an option which spawned this topic.
I don't pretend to know which government employees are exempt from Social Security. I invite public employees viewing this topic to weigh in on their situation. My question is, why should any of them be exempt?.
This quote from the business section of the NY Times is informative: Web Link
"Public school teachers in California, like roughly half the nation’s teachers, do not participate in Social Security, so their pensions must stretch further. Police also usually opt out of Social Security."

The fact that most people who have a chance to opt out of social security choose to do so is very telling.

Also interesting is that the Amish and other government-approved religious groups can opt out. See:

Web Link

So much for separation of church and state. If the Social Security mandarins deem your religion "worthy" then you can avoid the ponzi scheme, if not then you pay 15.3% at the barrel of a gun.

Have you ever calculated what 15% of your aggregated lifetime earnings is?

If it went to your retirement account (like an IRA or 401k instead of to Washington, DC), even conservatively invested, you would end up with a boat load of money that you could use without having to rely on the government. In addition to being a great source of money and wealth for your family (which could be passed on to children), in about 30 years, it would free up about a third of our current federal budget for things other than paying pensions.

So why do we send this money to Washington instead of letting you control it?

Thought the Bush crash of 2008 ended all this privatization nonsense. Silly.

Where the 15.3% figure from?

How is it a Ponzi scheme?

Did Jack really run for Governor? How'd it turn out?

Nvrmind... SS tax fifteen three on self employed. Got it.

I only pay 6.2 on my income for Social Security. Paid less last year under Obama.

It was Reagan that doubled payrooll taxes, wasn't it?

Look at this table from the SSA:

Web Link

15.3% directly if you're self employed, 15.3% total contribution if you work for someone else., But don't kid yourself, that 15.3% is all coming from you. When the employer pays it they are just diverting it from other parts of your total compensation package. Employers look at a worker's total cost, including wages, medical, social security tax contribution, 401K match, etc.

Ponzi scheme is a fair definition- incoming funds from new "investors" are what is being used to pay out to those earlier "investors". The assets and liabilities of social security would be qualify it as completely insolvent under any measure of accounting. Bernie Madoff had a better balance sheet.

Your employers portion of SS (6.2%) doesn't show up on your paystub, but is paid on your behalf. Most people are not aware of this hidden tax.

See: Web Link

Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation. This limit changes each year with changes in the national average wage index. We call this annual limit the contribution and benefit base. For earnings in 2013, this base is $113,700.

The OASDI tax rate for wages paid in 2013 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $113,700 would contribute $7,049.40 to the OASDI program in 2013, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2013 is 12.4 percent.

For Medicare's Hospital Insurance (HI) program, the taxable maximum was the same as that for the OASDI program for 1966-1990. Separate HI taxable maximums of $125,000, $130,200, and $135,000 were applicable in 1991-93, respectively. After 1993, there has been no limitation on HI-taxable earnings. Tax rates under the HI program are 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons.

Public employers and religious groups not in the SS system are not subjected to that 6.2% tax, thus have more available for employee compensation.

Ponzi scheme? That's really lame. Don't lower yourself to a Rick Perry level argument. It's three things: 1. dumb. 2. absurd. 3. ummmm... uhhhh.... let me get back to you on the third thing.

Oops.

Ponzi: "an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks"

- $2.5 trillion in Social Security assets. Ponzi? Nice try.

- Ponzi indicates fraud. There is no fraud with Social Security. You may not like some of the components, but that doesn't make it fraudulent.

"Social Security is and always has been either a "pay-as-you-go" system or one that was partially advance-funded. Its structure, logic, and mode of operation have nothing in common with Ponzi schemes or chain letters or pyramid schemes.

The first modern social insurance program began in Germany in 1889 and has been in continuous operation for more than 100 years. The American Social Security system has been in continuous successful operation since 1935. Charles Ponzi's scheme lasted barely 200 days."

Let's get something else out: Social Security has never added a dollar to the deficit.

To poster 'questions': yes, Ronald Reagan doubled the payroll taxes, in the largest middle class tax hike in history; one of at least 11 Reagan tax hikes.

Pearls:

I was a city worker and was allowed to opt out of social security in lieu of our retirement plan. Most all city and county workers also can. I don't know about the state. We all opted out because we were able to put our same 6 or 7% into a retirement plan that was FAR superior to Social Security. You know anyone on social security getting 90% of their final pay at 30 years of work? Neither do I. The fact is that most civil service employees DON'T participate in social security. You think maybe there's a reason?

You can thank your elected officials for this situation. While they supposedly "held the line" on pay raises, they were giving away the farm on retirement benefits. Those are benefits that virtually no one in the private sector gets. Of course those in the public sector have great job security and pay comparable to their private sector counterparts so why would it be a problem if we gave them retirment benefits that are UNSUSTAINABLE? After all they don't get.....uh....let me get back to you.

"Let's get something else out: Social Security has never added a dollar to our deficit?"

WRONG.

Last year, Social Security ran a $50 BILLION deficit which will be repeated this year. Don't believe me, just click on the link below or google it. It was in all the papers, even the New York Times.

Web Link

Just because you say something loud and stridently doesn't make it true.

Pogo: You are incorrect (I can use ALL CAPS, if you like.) The $50B shortfall went against Social Security's $2.5 trillion in assets, not the federal deficit.

The $2.5 Trillion assets in the Social Security trust fund were part of the 1983 Reagan deal. They are invested in the safest instrument in the world - US treasuries. It keeps Social Security solvent (and not adding a dollar to the federal deficit) until 2033, when, still without adding to the federal deficit, they can pay at least 75% of benefits.

With a few simple changes, full benefits can be paid after 2033, covering the remainder of the baby boomers. After the 'one-time' boomers pass through, Social Security will again return to surplus. One of the fixes that makes Social Security solvent for a century is removal of the payroll tax cap, currently set at $106K annually.

We agree on some things: just because you say something loud and stridently doesn't make it true.

Well then, you disagree with the New York Times, Washington Post and Congressional Budget Office. I can live with that if you can.

So those $100 billion in Social Security deficits apparently don't count to you because they were "funded" out of a stack of IOUs amounting to nearly $3 trillion. Even Bernie Madoff would be impressed.

With that kind of logic, you are clearly ready to run for political office. It's all so much fun... until it isn't. Unfortunately, it will be your children and their children who will be the ones thanking you.

"because they were "funded" out of a stack of IOUs"

Pogo: You've never diversified your portfolio with Treasuries? or Treasury backed derivatives?

I guess you may be one of the few in Woodside that has never invested in T-bills, in some form or another.

Or as you call them: IOUs

Only someone in government would believe that taking money out of one pocket and putting an IOU in the other pocket would qualify as diversification. Actually sadder, than funny.

[Portion removed; don't insult other posters.]

Cute. My questioning whether you ever diversified your portfolio with treasuries is suddenly conflated with the having an account with the $2.5 Trillion Social Security surplus.

Let's try again: Pogo, have you ever owned a treasury, a treasury fund or a treasury backed security? Or as you called them, IOUs.

And by all means, when you have no other defense, suggest someone take a class, followed with the insult of it being too challenging. Your posts used to be better than that. That is, if this is the same Pogo that used to post here years ago.

Menlo Voter, thank you for you on-topic post. pearls o wisdom, why don't you try doing the same?

The public employee unions put Democrats in office and the Democrats give the public employee unions whatever they want. Pensions, protecting bad teachers from being fired, etc. Its a giant, in the open conspiracy. If you've voted Democratic then you are responsible for all of this so you have no right to complain. Suck it up.

Federal government employees pay social security taxes, it's part of their retirement plan.CalPers retirees are limited in what they can collect from social security, a very small percent, about $400.00 per month. Not a lot of money, when many of them work their 40 quarters to qualify for social security benefits.

Wow, lots of misinformation circulating here! Let me put in my perspective as a retired Federal employee, over thirty years (including Army) and over 27 years of the Federal job which has the most threats and assaults:

1. My retirement is part of MY COMPENSATION, funds I was REQUIRED to contribute.

2. When I retired, I had to cut back considerably, and still only make it because I'm lucky enough to have an inheritance and also am able to work part time. If I had to rely only on my pension, I don't know what I'd do.

3. Most government pensions are in the $30-40,000 range, try to live on that in California.

4. Regarding government unions, anybody who doesn't like them should talk to somebody active in one. The agency I worked for consistently lost lawsuits to my union, because they (1) didn't want to give employees anything more, even those things that save money (like working at home) and (2) consistently violated laws. My union received court costs a lot because we fought things management did which were illegal.

5. Regarding retiring at 90%, the only people who receive that I know of are police; please correct if I am wrong.

Basically, for over 30 years I voluntarily agreed to policies which limited my political rights and at one time forbade my "associating with disreputable people" (whoever they were). Yes, I enjoyed my job and worked hard enough to receive awards. Now I am receiving the benefits of what I contributed to the system.

Former Resident:

thank you for your service. The others that typically recieve 90% at 30 years are firefighters.

The primary problem with civil service pensions is that they are fixed benefit pensions. They'll never change until the day the retiree dies. The Calpers system has an unfunded liability for folks that are retired or will retire of over $400 billion. That is going to grow as Calpers "sustainability" figures are based upon a 7.75% return on their investment portfolio. That isn't happening and isn't likely to happen for quite some time.

How does that unfunded liability get paid for? By us taxpayers. Calpers goes back to all of the cities and counties and asks for more money which they are obligated to give Calpers. Where does that money come from? From increased taxes or reduced services.

Now, if my 401k tanks I don't get to go back to my previous employers so they can make up the difference. That applies to about 95% of the private sector. Can you see why those of that are footing the bill for civil service pensions might be a little upset?

TO: Pearls of Wisdom

THANK YOU FOR YOUR RATIONAL INFORMED POSTS. I really enjoyed your discussion. You deserve an ALL-CAP compliment!

Unfortunately no one can argue with these 1%'ers. Talk about "entitled!!!" They take the cake (and the $$$) They're still looking for the President's birth certificate.

Oh, Lordy

Neighbor -

No one that I know is looking for the President's birth certificate. That's a convenient distraction from the real problem which is unsustainable government spending. You don't have to believe me, the government's own accounting office said so last week and they used that very word ("unsustainable").

Menlo Voter got it exactly right - the challenge noted in this thread is that of defined benefit pensions. Our cities, counties and states are having to devote more and more of their budgets to pay those unsustainable retiree benefits. I suspect that citizens will eventually become disenchanted that they are "on the hook" to fund those benefits at the expense of their police, fire, schools, etc. We don't mind when retirees absorb 5% or 10% of a budget, but when they start crossing that 20% line, we do.

Or, as some suggest, this is all made up and we don't have a problem. And despite what the GAO said, they'll be correct, right up until the time they are not.

Menlo Voter -
I think you're being too pessimistic in evaluating the state pension plan (CALPERS). Things look bad from the depths of a recession but as the economy continues to recover the unfunded liability will start to shrink as returns on CALPERS investments also recover.
A few things to keep in mind:
1) No pension funds are 100% funded. Most consider 80% funding to be adequate since the state will always have employees paying into the fund. This is similar to Social Security, which relies on current receipts from active employees to pay most of current retiree benefits.
CALPERS is currently about 70% funded so there's only a 10% difference before it's back to its normal 80% funding level. So if the total unfunded liability of $400 Billion that you mentioned is correct, then the real target for CALPERS is closer to $135 Billion. A Big number but not as scary as $400 Billion.
2) Since 1990 CALPERS has experienced negative returns only 4 years, the worst a 23% loss in 2009. Returns bounced back in 2010 to 11% and then 21% in 2011 before dropping back to 0% last year. To my mind, this demonstrates that a 7.5% return over the long haul is not at all unreasonable.
3) CALPERS had returns of 10% or greater for 15 years since 1990 including 8 years with returns greater than 15%. During many of these years, CALPERS reduced or eliminated employer contributions from cities and counties, which in retrospect was a mistake. If the cities had simply placed these monies in a rainy day fund, they wouldn't have a problem making the extra payments required now as the fund attempts to return to normal 80% funding levels.

Former Resident, you didn't mention whether you were required to participate in the Social Security system. That's the issue here.
And, it's not about the viability of CalPers or 401k plans. I f public employees can opt out of Social Security, why not the rest of us?

Jack -
Federal employees hired after 1985 are required to pay 7% of pay into Social Security. They also pay into a small pension fund and can contribute to an optional 401K-type fund called the Thrift Savings Retirement fund. The pension pays about 1% for every year worked. This, added to Social Security, provides a minimal retirement. Most employees also contribute to TSR to ensure a better retirement.
The previous Civil Service Retirement (CSRS) system that was replaced by this new Federal Employee Retirement System (FERS) was a pension only system. Employees paid 7% of earnings into the pension fund and were forbidden to collect Social Security when they retired.
The CSRS pension is slightly less than 2% of high-3 salary for every year worked. Someone retiring with 30 years under CSRS would have a pension of about 58.5% of their hi-3 salary. CSRS employees can also contribute to the TSR fund to provide for a more secure retirement.

Jack -
CORRECTION: FERS employees contribute 6.2% of income to Social Security and 0.8% to their pension fund. Together they add to 7% of income toward retirement, the same as CSRS employees pay toward their pension.

Thanks, Steve. Nice to know that Federal employees can no longer opt out of the SS System. Still, all those years prior to 1985 didn't help subsidize the SS system. If we are going to keep the SS system, then all employees should be enrolled. (my personal choice would have all employees choose their own system) An effort to recapture lost revenue resulting from public employee exclusion from the system should be considered.

Jack -
Federal employees prior to 1985 didn't contribute to Social Security because they don't get Social Security when they retire.
Why should they contribute to a system they aren't a part of?

My point is that they should have been part of the system, just as ALL public employees should have been.

Steve:

Federal employees before 1985 didn't contribute to SS becasue they didn't have to. If it was such a wonderful retirement plan don't you think they would have voluntarily contribited? No? Why? Because they could put their money in a better system that they could be assured of recieving better benefits. As would anyone else offered the opportunity. As did I when I was offered the opportunity to opt out. My and my employer's contribution going into a system that was guaranteed to pay me a MUCH better payout during retirement. That's referred to as a "no brainer."

Hey, here's an idea...

How about workers KEEPING the roughly 15% they now contribute to SSI and then be responsible for funding their own retirement? In addition to having far more money (do the math), far better returns, far more control, and amassing real wealth, it would get the government out of the messy retirement business which they have no business doing. That would free up TRILLIONS of tax dollars for more worthy things, including providing that safety net for those in real need, not retirement funds for everyone.

Just a thought.

Menlo Voter -
Before 1985 feds had no choice but to contribute to the CSRS pension fund. There was no option to contribute to Social Security until the new FERS system came along that replaced it.
However, in 1985 feds did have a chance to convert to the new retirement system, which meant a reduced pension along with Social Security and an optional 401(k). Most feds turned it down because, as you suggested, the new retirement system was seen as inferior to the old one. In fact, if you contributed a fair amount to the 401(k), you could do as well under the new system as the old.
The problem with the pension was that it wasn't portable. If you left the government, you left your contribution behind and, when you did finally retire, your delayed pension was pretty puny, based on your high-3 salary as of the date you quit, maybe 10 or 20 years earlier. Shifting to Social Security and a 401(k) made for a portable retirement package, which was supposed to be its big advantage.
From my own experience I believe that a defined benefit retirement plan (ie. a pension) is a better deal for the employee than a defined contribution plan (ie. 401(k)). I think Congress made a big mistake back in the '80s when they passed the enabling 401(k) legislation. You could tell it was not a good thing for workers because businesses embraced 401(k)s so enthusiastically. Of course it got them off the hook of being responsible for managing pension funds and transferred the responsibility for managing retirement funds to the employee.
And we know how well that turned out. According to the Wall Street Journal, "the median household headed by a person aged 60 to 62 has less than one-quarter of what is needed in their 401(k) account to maintain their standard of living in retirement." Which puts the pressure on Social Security to be there for them more than ever. Which basically means a lot of baby boomers are going to be working well into their 60's.

POGO-
You well know that Social Security is a pay as you go system. If the 15% of salary that employees and employers contribute to Social Security were to stop, then Social Security would be out of money to pay current retirement benefits in no time. The $2.7 Trillion trust fund would be emptied in less than four years.
Sorry to shoot down your idea but we can't just write off the 54 million people who rely on Social Security payments each year.

Steve:

your description of the Social Security System sounds kind of like a Ponzi scheme. Don't forget there is a growing retiree population with a shrinking working population that is supposed to be paying for the retirees.

MV -
I think that the erroneous claim that Social Security is a Ponzi scheme was nicely addressed by Pearls of Wisdom on Jan 25, above.
You're right about a smaller population having to support a larger retiree population as us boomers retire. If something isn't done to address this problem, the trust fund will be drained by 2037 or so, at which point income from the current workforce will be only enough to pay about 75% of the benefits promised. This is why I think the $103,000 base that is subject to the OASDI tax (Jack Hickey talked about this above) needs to be increased or eliminated altogether. That simple change would ensure the sustainability of Social Security through 2050, after which the last of the baby boomers will have died and the system will be in fine shape.

It seems clear from postings on this topic that the Social Security System has been deprived of contributions which would have accrued from high income earners in the public sector had they been required to participate. Those contributions, for which those of us in the private sector have been taxed, were intended to subsidize the retirement benefits of the less fortunate, lower income earners.

How can we remedy this inequitable situation?

Jack -
You contributed to Social Security and you get benefits from Social Security in retirement. Public officials who didn't pay into Social Security will get no Social Security benefits when they retire.
What's your problem?
In California, the largest group of public employees who pay into a pension fund and not into Social Security are teachers - they retire under the California State Teachers Retirement System (CALSTRS). I don't think you can fairly describe most (any?) teachers as high income earners.
This dog won't bark Jack. Give it up.

Pay As You Go = Ponzi scheme that hasn't yet ended.

Steve, for the purposes of the Social Security System, high income earners are those who pay the maximum into the system each year. I was one, and I made less than plumbers or electricians.
As I posted earlier:
"Social Security benefits are intended to replace only a percentage of a worker’s pre-retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent."

Most teachers would would fall closer to the reduced 25% rate of return.

SACRAMENTO BEE
See how well your school district pays its teachers, superintendent
By Phillip Reese
[email protected]
Published: Wednesday, Jan. 26, 2011 - 12:00 am
Last Modified: Monday, Dec. 10, 2012 - 9:44 am
Web Link

Watch for San Mateo County Community College District payroll in the Daily Post. Are they enrolled in the Social Security System?

Jack -
So are you proposing that the state shut down the CALSTRS pension fund and have the teachers start contributing to Social Security instead?

All I am suggesting is that public employees pay their fair share of the subsidy for low income workers retirement which Social Security imposes upon the rest of us. Or, alternatively, let us opt out also! Of course, there still remains the issue of how to remedy the inequities of the past.

Another inequity of the Social Security System which is avoided by those public employees who have been exempted from the system can be seen in the link below. It deals with Survivor benefits.
Web Link

Jack -
I think you're confused about Survivor Benefits. You say in your link that the younger family would receive more benefits than your family, even though you had worked 10 years longer and contributed that much more to OASDI. You're wrong about that.
This from the Social Security web site Web Link :
"How much your family would receive in benefits depends on your average lifetime earnings. The higher your earnings were, the higher their benefits would be. We calculate a basic amount as if you had reached full retirement age at the time you die."

SSA "We calculate a basic amount as if you had reached full retirement age at the time you die."
The younger father would have a higher amount at full retirement, therefore his family would receive more than mine. If we were drinking buddies, him being 10 years younger, and married twins in a dual nuptual, had children of the same age, etc., and we both died in a carcrash, his family would get more. Q.E.D

I am suggesting that people take care of their own retirement.

Why is that a government function?

Steve -

I'm not writing off anyone. Those who are in the system continue to receive their bargain. By the way, they will get back far more than they contributed, especially when it comes to Medicare.

But for those who haven't even entered the system or paid a single dollar of payroll taxes, why perpetuate the system? Let them pay into their own accounts, keep the money and get government out of the retirement business? Yes, it will take a full generation or two to happen, but why not start now?

And yes, it will cost us some money during the transition. First, we could continue to fund it (at least partially) through a transitional and diminishing tax until everyone is out of the system. That would not be the first time we paid taxes for something we did not get. Second, you ignore the existing unfunded liability which DWARFS the transitional number.

Most importantly, we eliminate one of the biggest government expenditures, which is running a $50 billion deficit right now. Second, we restore some personal responsibility for individuals (heaven forbid!) while allowing people to amass real wealth which they can use or pass on to their families. That would be a pretty good thing.

By the way, run the math on 15% of your lifetime earnings with a modest return. You may be surprised what you end up with. I'll be very surprised if it's less than your SSI benefit (which will be zero if you die before age 65).

The math:

Assumptions

1. Begin your career at age 23 and retire at age 65.
2. Starting salary is $45,000 a year.
3. Average annual salary increase is 3.5%.
4. Put away 15% of your annual earnings.
5. Average annual investment return is 4% (with limited, conservative, diversified investment choices, like stock and bond funds)

You'll end up with more than $650,000 in your retirement account. Live on it or die and leave it for your family. Your choice and something you can't do with your SSI benefit. That's REAL wealth. (Start out with $70,000 and you'll have over a million dollars.)

No, it's not a perfect model, but you have to use some model. This one is certainly not unreasonable.

And that's for someone starting at $45,000 a year. Start higher, like for an accountant, teacher, engineer or fire fighter, and you'll end up with more. And that's for a 4% return which would seem reasonable (and just half of CALPERS estimates...).

And I'm not against providing a safety net for our poorest and most unfortunate citizens... jut not people who are perfectly capable of saving their own money.

Jack...

Just to clarify, during my Federal civilian service, I was not allowed to opt into or out of Social Security. What Social Security I will receive is from employment before my Federal service (and it isn't much). I had no choice regarding Social Security.

But I'd do it again, under either program. I accomplished a lot for YOU in my thirty-plus years.

I am a public classified employee and I pay Social Security.

POGO-
So, you're suggesting eliminating the Social Security System over time and having individuals contribute 15% of their pay into their own, self-managed retirement account? The problems I see with that are almost too numerous to list but here are some big ones:
1) Even as Congress is trying to reduce the deficit without increasing taxes, you would ask them to come up additional (and annually increasing) funding to cover Social Security benefits lost as new workers stop contributing to the fund? This funding would have to be maintained for the next 50 years or so until the last of the Social Security generations die off.
2) What replaces the disability and survivor aspects of Social Security? Workers will still become disabled and die. What will provide the income replacement for them and their children? If the accident or death occurs early in their working career they won't have saved enough in their retirement fund to cover their years of disability, let alone enough to see their children raised and through school. OASDI is more than a retirement fund.
3) Workers currently pay 6.2% of salary into Social Security. There's no way many of them can meet your 15% savings requirement.
4) 401(k) funds have been around for 30 years yet the average amount saved in these funds is less than $75,000. One in four tap their 401(k) to deal with emergencies, to get their kids through college or simply to pay bills during a recession.
5) Most workers are not financially educated enough to manage their savings. During the 2008/2009 market crash many took their savings out of the market at the bottom (locking in their losses) and then failed to move back into the market as it recovered (missing out on the gains). You're dreaming if you think you can change human behavior when it comes to savings.
6) As others have pointed out, our current 401(k) structure is only guaranteed to benefit the 401(k) plan providers who charge both employers and employees various fees related "management" costs. Your plan would guarantee even more profits for banks & investment firms without guaranteeing anything for the workers stuck with this "new & improved" retirement program.
7) Over half of households are at risk of not having enough to maintain their living standards in retirement. And that's including Social Security benefits in the calculation. Take away Social Security and I foresee a return to increasing poverty for our seniors.
7) Even using the optimistic $650,000 savings that you calculated, the worker only be able to withdraw income $24,600 per year, using the conservative 4% withdrawal rate to ensure they don't run out of savings before they die. This amount hardly enough for a comfortable retirement and is not that much different from what Social Security currently provides. Why put everyone's retirement at risk through mismanagement, failure to save enough, or a repeat of the 2008 financial crisis when the system we currently have is working quite well thank you?
To my mind Social Security is a bargain for every American, providing disability & survivor benefits during their working life and a basic retirement benefit when they retire.
Of course, it will be only a basic retirement benefit and all workers should endeavor to save more so they can have a more comfortable old age. But to throw out a Social Security system that has proved its worth for over 70 years in favor of a very risky - if ideologically purer - system seems the height of folly to me.

Pogo thinks the employer share of SS taxes will magically go to the worker, hence the 15% figure. Unicorns are pretty cool, too.

Bunch of libertarians here that detest the new deal. Look at Jack - his troll-ley way of attacking SS is to use the "concern" he has for his least favorite form of human (the dreaded public worker) and how they do not 'contribute'. Then he keeps whining about Pearls, ho kept the first half of the thread going, mocking how Jack kept deviating off topic.

yo Pearls: yes, Hickey ran for guv, during the recall, iirc. Yes, remove the tax cap and make it a flat tax on all incomes. As it stands, it is the most regressive tax we have, except, arguably, for sales taxes.

Steve: yer a saint. Good work. Keep on truckin', babe.

Others: give it up. The New Deal ain't going away. Libertarians will never sink it.

Steve, you left out the "redistribution of the wealth" feature of Social Security which does not exist in public employee pension plans. A remedy for this inequity is in order.

From a prior post.
"Social Security benefits are intended to replace only a percentage of a worker’s pre-retirement earnings. The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent."

Jack -
What would the remedy for this inequity in the Social Security System look like?
Almost all federal employees now pay into Social Security so we can't turn to them for a remedy. The 15% of feds still under the old system will be retired before long so that won't solve the inequity problem for long either.
In California, the largest group of public employees not paying into Social Security are the teachers. However, they already contribute 8% of their earnings into their pension fund, almost 2% more than private employees pay into Social Security. Shall we force them to pay another 1% or 2% or 3% of their earnings into Social Security, even though they'll never collect the benefits when they retire? A remedy yes, but not a particularly fair remedy unless you're one of those folks who think teachers are under-worked and over-paid.
But wait. There is another group that could provide a solution to this gross inequity: The Wealthy. After all, many of the wealthy receive little or no earned income and so contribute nothing to the Social Security system. Yet most wealthy folks receive thousands, millions and sometimes tens of millions, even billions of dollars per year in unearned income from dividends, rentals, capital gains and inheritances. If the government were to assess these unearned incomes at just a fraction of what it collects from every working stiff's paycheck and put the proceeds into the Social Security trust fund, your inequity could be easily eliminated. In fact, I suspect this would solve the long-term solvency problem of the program and maybe even allow Social Security benefits to be increased across the board.

This would go a long way towards reversing the growing income inequality that has plagued this country since the days of Ronald Reagan. Talk about redistribution of wealth! This redistribution of the nation's income to the already wealthy is one of the most obscene developments the capitalist system has foisted on the American People since at least the 1920's.
Great idea Jack to fix the inequities! Let's get on it right away.

Reagan did the illegals amnesty, too.

"If the government were to assess these unearned incomes at just a fraction of what it collects from every working stiff's paycheck and put the proceeds into the Social Security trust fund, your inequity could be easily eliminated. In fact, I suspect this would solve the long-term solvency problem of the program and maybe even allow Social Security benefits to be increased across the board."

Works for me. Or just remove the cap on SS taxes, currently stops at the first $106K in income.

Or keep a donut hole on income from 106 to 250, then SS taxes kick back in on all income above $250K.

Voila'

Easy peasy.

btw: did Jack get more than 5,000 votes in the recall?

Barney -
Yeah. Jack's all hot under the collar about a minor inequity in the distribution of Social Security benefits but he doesn't want to talk about the great inequity that has seen national income distributed disproportionately to the wealthy over the past 30 years.
As the ECONOMIST pointed out Web Link the top 1% has seen their income increase nearly 300% since Reagan took office while the middle class has seen only about a 40% increase and those at the bottom less than 20%.
Most of the wealthy folks' increase is from unearned income that is only lightly taxed and contributes nothing to Social Security. A 1% OASDI tax on unearned income would begin to rectify this great inequity.

Steve, the inequity to which I referred in my last post has to do with the fact that many public employees have not paid their fair share of the subsidy for low income workers retirement which Social Security imposes upon the rest of us. Possible remedies? Perhaps a contribution could be exacted from public employee retirement benefits. Even a few percent would go a long way toward correcting inequities of the past. Future remedies? Either include all employees, public and private in the Social Security System, or let everyone opt out.

Don Quixote has spent weeks tilting at a windmill:
- he can't easily define: "A remedy for this inequity"
- that doesn't stand a snowball's chance in happening
- while functioning as a concern troll for the system, as highlighted by Ferd: "his troll-ley way of attacking SS is to use the "concern" he has for his least favorite form of human (the dreaded public worker) and how they do not 'contribute'" in Jack's preferred manner

I also liked the way Pearls mocked dear Governor.

Pearl: come back, come back, wherever you are!

Jack -
The wealthy who derive their income from unearned income also haven't contributed to the Social Security System. Why are you letting them off scott-free? They have far more wealth than the public employees. Even a minor 1% OASDI tax on unearned income would easily solve this inequity.
Why are you so focused on taking it out on the public employees? What did they ever do to you?

Jack -
When you took your job in the private sector you should have been aware that Social Security benefits were, as you see it, distributed inequitably. If you objected to this, you should not have taken the job. Instead, you should have found a job in the public sector where you could have enjoyed the great benefits of their retirement system. That you didn't suggests that public work isn't as great as you make it out to be.
Complaining about it now, and asking that all public employees be taxed retroactively to assuage your sense of injustice is more than a bit ridiculous. It's also illegal to ask that the rules be changed after the fact. Stop whining and get over it.
Now if you want to be outraged about something that needs to be changed we can continue the discussion on why unearned income is taxed so very lightly compared to income earned through hard work. That's something deserving of real outrage.

Unearned income has to be taxed lower than Real Work performed by working American families.

It is really important to allow trust babies to be able to sit by the pool and open up their portfolio statements with one hand while caressing a glass of Dom in the other. Let the pool boy be taxed at a higher rate. Let the plumber who fixes the pool pipes be taxed at a higher rate.

/snark

As someone once said, think about the example:
- American workers like plumbers, teachers, cops and firefighters

vs

- Paris Hilton sitting by the pool, with all that wealth and income that is taxed at lower rates (sometimes not at all) than real workers.

We know which side the Libertarians are on.

We learned a lot this last year when Romney wouldn't release his tax returns. He knew he would be running for the last dozen years - it took him that long to clean up his taxes so he could release a single year. Even at that, he paid only 13% on $40 million.

Jack wanted to be governor for the same reason Meg Whitman wanted to be - to eliminate her capital gains taxes.

Steve -

I'll only address a couple of your points because I'm not sure I understand some of them.

My points address retirement, not disability or death benefits. I would suggest that the Social Security death benefit is so small that it could be eliminated without much impact. And again, I have no issues with helping truly poor people Paying a tiny death benefit to the average family makes little sense and that's why you are supposed to have insurance.

Secondly, there is a reason that current 401(k) and IRAs don't have the same amount of money that I suggest. The reason is MANDATORY. Social Security taxes are mandatory and I'm suggesting replacing that with a mandatory contribution fo 15% of income into your own account.

Third, I mentioned a transitional tax which would allow the government to phase out of the retirement business. It probably wouldn't cover the entire cost, but we don't cover the entire cost today (it ran a $50 billion deficit in each of the last two years). I just want the government out of this business and there's a cost to doing so. Think of all the money we would have if people were made (as they are today) to fund their own retirement.

Finally, whether you or anyone else thinks you are paying the full 15% is irrelevant. Your employer knows they are paying the full load and it is certainly impacting them. Don't believe me? If you don't want to look at the history of the burden shift of insurance premiums from
the former "all employer" to the current "mostly employee," just wait and see how employers react when the ACA tax is fully implemented (and far cheaper than paying private insurance). And if you're self employed, you already know that payroll taxes are 15%. Then again, you can ignore it right up until your employer doesn't.

The reason I support this is because I have seen it work FIRST HAND. I previously noted the use of "portables" (that's what they call them) in The Netherlands where pretty average employees had hundreds of thousands of dollars in their personal accounts... all by contributions of 15% of every dollar they ever earned. And that was in the early 1990's with very conservative investments.

Jack wonders why distributions in the public pensions are different and there's no distribution of wealth. The main reason would be that those who are earning more are PAYING more. There is no cap that makes the "tax" regressive as with Soc. Sec.
Does the system need fixing? Sure. The government shouldn't have to contribute MORE to the pension fund than a private company does to Soc. Sec as they currently do. Teachers contribute something like 8.7% and that is matched. The rest of the country got a break from 6.2% down to 4.2% even though we still had to pay off the retirees with that money. The national deficit increased. Paying off the interest on the loan that government has taken out on the Soc. funds it borrowed is more debt. I'm not going to complain that MY taxes go to pay off everyone else's retirement debt, but so be it. I'd be happy to have the schools pay 6.2% and I'll go up to 10%. Pogo wants us all at 15%? Well, we'd be there. If COMPANIES don't want to pay into any retirement, then they will end up paying larger salaries to support Pogo's idea. Mandatory savings at 15% Great! Good luck passing that through the government in America. Or are we all going to take a 10% hit to our salaries to help American corporations? That would be great if the corporations actually acted like real American citizens and reinvested in AMERICA. Writing OFF the national debt to social security as if it never happened?? NO! The money never ever EVER should have been borrowed!

There have been 13 commentators on this topic. While I am the only, unambiguosly identifiable commentator, I appreciate the inputs (even those which are off-topic) of all participants. There have been 1181 visits to this topic. I expect that would include at least a hundred interested individuals, with multiple visits.

Time for a pop quiz. Limited to first 100 responses. Take it here: Web Link

You're paying 15% NOW.

I just want it to be yours.

POGO -
You misunderstood me. I wasn't talking about the death benefit of Social Security (admittedly small). I was talking about the survivor benefits which supports young children when the working parent dies. This is a vital part of Social Security and it is not a small amount. Neither is disability. Your new program makes no provision for either.
I'm not sure what you're referring to when you mention "portables" in the Netherlands. Their retirement system, as best I can tell, is very similar to the American system of the 1980's, consisting of two defined benefit plans and an optional 401(k)-type plan:
1) First is a government pension very similar to Social Security that everyone contributes to. It is pay-as-you go with current workers paying benefits for current retirees and government taxes making up any shortfalls;
2) a corporate-type pension managed by separate, non-profit pension managers that company or government employees contribute to & benefit from;
3) an optional pension that may be a defined contribution like our 401(k) for self employed and other.
Only 5% of Dutch workers rely on on 401(k)-type plans so I really don't know why you're so enthusiastic about Dutch "portables" when the Dutch themselves seem to be quite content with their pension-based retirement system. As far as I can tell, their system works looks much like the US system did in the 1980's when retirement consisted primarily of Social Security and pensions.
See this link for info on the Dutch system: Web Link
I see no evidence that the Dutch are unhappy with their current plan and are moving toward the defined contribution plan that you describe.

Jack -
You haven't responded to my observation that the big inequity in the system is that we don't have an OASDI tax on unearned income. Hedge fund managers earning literally $Billions per year make zero contribution to Social Security. How is that fair?

Steve, that's way outside the intent of this topic. I suggest you create a separate topic.
Pogo, you said:
1) First is a government pension very similar to Social Security that everyone contributes to. It is pay-as-you go with current workers paying benefits for current retirees and government taxes making up any shortfalls;

The "everyone contributes" part is what I see missing in Social Security System. It should be all or none. (workers on a payroll)

"that's way outside the intent of this topic."

No more than "The 'everyone contributes' part"

For shame. Your ignoring it says it all.

Confirms Jack's intent, per Ferd: of "attacking SS is to use the "concern" he has for his least favorite form of human (the dreaded public worker)"

Jack -
The "everyone contributes" quote describes the Netherlands where everyone contributes to the government pension plan and benefits from it.
In the US, we are moving toward that system but are not there yet. For example, federal employees have contributed to Social Security since 1985. Many states are switching from a pension-based retirement system for their employees to a Social Security plus 401(k) type of plan.
However, we still have public plans that are still defined contribution plans (pensions) with no Social Security component. If you want to argue that those employees should contribute something to Social Security to benefit the lower paid private employees even though they will never receive a penny in return, then go ahead and do so. It won't happen. It would be a legal nightmare to try to get it enacted and a bureaucratic nightmare to administer if it were.
Your free to complain about anything. Just don't hold your breath waiting for this change to happen.

The truth of the matter is this. Calpers 2% at 55 or 2% at 63 are both affordable and sustainable if you look at the numbers. Or am i challanged? What is not sustainable AT ANY AGE CALCULATION (50, 55, 58, 60) is the 3% figure police, fire and correctional receive. So half of the hard working public sector are getting ripped for this issue about unsustainability when it doesnt even apply. Very unfair and discriminatory, call it like it is, public safety pensions unsustainable, not public workers.

Vidofan:

I suggest you look up the study done by Stanford. The study determined that Calpers has an unfunded liability of 400 billion dollars and the current retirements, both 2% at 55 and the police and fire are UNSUSTAINABLE. Calpers will be required in the future to come to cities and counties for more money. That will require either tax increases or cuts in service. Which do yyou prefer? Calpers return on investment this last year was 1.5%. Calpers own figures as regards sustainability requires a 7.75% return. They're not even close and are unlikely to be for quite some time.

So the ACTUAL truth of the matter is that none of California's public employees retirements are sustainable.

I said:
The "everyone contributes" part is what I see missing in Social Security System. It should be all or none. (workers on a payroll)
Steve, I understood that was describing the Netherlands system. We seem to agree that an inequity exists, but has been corrected in some areas.
Barney, you missed the (workers on a payroll) part of my comment. This topic is not about how to get the super wealthy to pay their fair share.

Menlo Voter -
You must have a poor memory since I responded to each of your arguments just a few days ago. To repeat myself:
1) No pension funds are 100% funded. Most consider 80% funding to be adequate since the state will always have employees paying into the fund. This is similar to Social Security, which relies on current receipts from active employees to pay most of current retiree benefits.

CALPERS is currently about 70% funded so there's only a 10% difference before it's back to a more typical 80% funding level. So if the total unfunded liability of $400 Billion that you mentioned is correct, then the real target for CALPERS is closer to $135 Billion. A Big number but not as scary as $400 Billion.

2) Since 1990 CALPERS has experienced negative returns only 4 years, the worst a 23% loss in 2009. Returns bounced back in 2010 to 11% and then 21% in 2011 before dropping back to 0% last year. To my mind, this demonstrates that a 7.5% return over the long haul is not at all unreasonable.

3) CALPERS had returns of 10% or greater for 15 years since 1990 including 8 years with returns greater than 15%. During many of these years, CALPERS reduced or eliminated employer contributions from cities and counties, which in retrospect was a mistake. If the cities had simply placed these monies in a rainy day fund, they wouldn't have a problem making the extra payments required now as the fund attempts to return to normal 80% funding levels.

Jack -
You haven't explained just how it would work for folks on pension plans to contribute to Social Security and, if they did, how the benefits would be recalculated to eliminate the inequity.
And you also haven't mentioned how the wealthy, who pay no OASDI tax at all on their unearned income, would be included so your goal that "everyone contributes" might be realized.

"This topic is not about how to get the super wealthy to pay their fair share."

Yet Jack insists this thread is about INEQUITIES.

Oh, Jack.... Ferd was correct, wasn't he? "Look at Jack - his troll-ley way of attacking SS is to use the "concern" he has for his least favorite form of human (the dreaded public worker) and how they do not 'contribute'."

So we've gone from Jack saying "Steve, the inequity to which I referred in my last post has to do with the fact that many public employees have not paid their fair share..." to

DON'T TAX THE ULTRA WEALTHY!!!

Sad. Remarkable that Jack wasn't elected governor, wasn't it?

Or not.

Steve, my purpose was to establish that an inequity exists. I think that has been done. I leave it up to the Legislature or the Courts to fashion a remedy. I repeat an earlier post for those who may have missed it.

"... the inequity to which I referred in my last post has to do with the fact that many public employees have not paid their fair share of the subsidy for low income workers retirement which Social Security imposes upon the rest of us. Possible remedies? Perhaps a contribution could be exacted from public employee retirement benefits. Even a few percent would go a long way toward correcting inequities of the past. Future remedies? Either include all employees, public and private in the Social Security System, or let everyone opt out."

"Steve, my purpose was to establish that an inequity exists."

vs

"This topic is not about how to get the super wealthy to pay their fair share."

Oh, Jack.....

Jack -
So you're suggesting that CALPERS needs to write a check to Social Security for 2% or 3% of the value of their pension fund? Of course, that would mean the unfunded liability of the pension fund would increase by that amount. In response, state & local governments would have to kick in even more to cover this additional unfunded liability. Which means taxes for everyone go up.
I guess this is another way to make sure "everyone contributes" but boy, I don't think POGO's going to like this.

Steve:

do you think the Stanford study didn't take your points into account. The $400 billion unfunded liability is over time. Their prediction is that over time Calpers is going to come up $400 billion short in its ability to pay its pension liabilities, triggering requests for more money from the cities and counties. That's what I consider unsustainable.

Menlo Voter -
NO, I don't think Stanford took my points into account! As far as I can tell, their $400 Billion unfunded liability is based on an assumption of 100% funding of all pension liabilities, even though many won't be due for 30 or 40 years down the road. This is a ridiculous way to calculate pension liability, especially for a public pension. Maybe it makes sense for a company, which could go out of business at any time and lose it's funding stream. But as bad as California's budget has been, there's zero chance the state will be out of business in 30 years. Zip.
CALPERS' review of the Stanford study was that it was "intended to exaggerate perceived costs and the instability of pension systems". CALPERS, using standard accounting methods for public pensions calculates that they were, as of a year ago, at a "75 percent funded status, with an unfunded liability of $85-90 billion". And the economy's only gotten better since. This liability is not much different than my calculation above and nowhere near the $400 Billion the Stanford study came up with.
Why should we believe CALPERS you ask? Well CalPERS has maintained good levels of funding and delivered promised benefits for 80 years. Over the past 20 years CalPERS has earned an average annual investment return of over 16%, almost 9% above it's current target of 7.5%.
You may have read that the DOW closed yesterday above 14,000 for the first time since 2007. You can expect that CALPERS returns are rising along with the stock market and the rest of the economy and, with any luck, will score another double digit return for FY2013.
When the markets fell over 2008/2009 did you rush out and sell your stocks as if the market would never recover? Probably you were too smart to panic like that. But that's what you're suggesting we do with public pensions such as CALPERS - "it's hit a rough patch so let's throw it all out and make it into a 401(k) system like I have". Yes, public pensions experienced a severe blow to earnings because of the recession - as did most 401(k)s - but they are recovering, as hopefully are your retirement funds, in tandem with the improving economy.

Steve:

clearly we're going to have to agree to disagree.

Another question. Why do you think defined benefit retirements are such a great idea? Why should public employees be able to opt out of the Social Security System that the rest of us have to pay into? Especially when the retirement benefits for those public employees are better than those of us required to pay into the Social Security System?

Menlo Voter -
Public employees don't have the choice to opt in or out of Social Security - it's simply not available to them. For CALPERS and CALSTRS the pension plan is the only retirement package available. It goes with the job.
This is not true for Federal employees - Congress switched to a hybrid system almost 30 years ago that includes full participation in Social Security. All feds hired since 1985 - Congress people included - are in the new system. Only the oldest feds are still on the old Pension-only plan.
I think the advantage of defined benefit plans like Social Security and pensions is that, depending on years worked, you will know exactly what that part of your retirement benefit will be from the month you retire until the month you die. And if you have a spouse, they will know exactly what they'll be getting should you die. Another advantage of pensions is that they are managed by teams of professional investors at very low costs. If its a private pension plan and it goes bust, the Pension Benefit Guarantee Corporation steps in to make you whole (or close to it).
Compare this with 401(k) or IRAs where you're on your own in managing your investments, unless you want to pay a premium to have an investment counselor manage them for you. If you screw up or you turn your funds over to Bernie Madoff to manage, too bad. Hope you like dog food.
With these defined contribution plans, the amount you retire with depends on so many variables that you have limited control over: having a good enough job that you can afford to contribute at all; being smart enough financially to not withdraw your investments at the bottom of a recession; not needing to borrow against the account to buy a house or deal with illness; the simple vagaries of the markets over your career.
Even if you retire with a good amount, you have to be careful not to withdraw too much or you risk outliving your savings.
POGO seems very enthusiastic about this type of retirement account and thinks all defined benefit plans should be converted to these defined contribution plans. While it would be good news for Wall Street, the past 30 years of experience with 401(k) plans has demonstrated that they aren't working well for most Americans.
We invest too little and too late.
We are not financially literate and invest too conservatively when young.
Then, when older, we panic when we see how little we've saved and invest too aggressively.
We tap our accounts to pay off debt, deal with illness, get our kids through school.
We bail when the markets drop and get back in after they've recovered.
There's a reason Americans have saved only about a quarter of what they need to retire by the time they're 62!
If you're smart, cautious, and lucky you can do very well with these accounts. But if things don't work out for any of the reasons mentioned, you're retirement is going to be neither relaxing nor rewarding.
At least we'll have Social Security to fall back on, which is the main reason we have to fight to keep the Repubs from destroying the program as George W. tried to do.
I think Congress made a huge mistake in the 80's when they made it so easy for companies to convert their pension plans to 401(k)s. It worked out well for the companies in unloading the responsibility onto their employees but it hasn't worked out so well for the employees themselves. Rather than getting rid of the few pension plans that still exist, we should be urging Congress to rewrite the laws to encourage companies to switch back.
The link I provided above to the retirement plans in the Netherlands is enlightening. They have a 2- or 3-legged retirement program for their people. The primary leg is a government pension (very similar to Social Security) that everyone contributes to. If you work for a company or government, your employer contributes to secondary pension plans that are all managed very efficiently by the government. The third leg is a 401(k)-type plan, available mostly for the self-employed though it's available to all. It's telling that only 5% of the Dutch choose the 401(k) plan. 95% opt for the certainty of the pensions.
Maybe we should take a lesson from the Dutch.

Steve, this is what I said: "Possible remedies? Perhaps a contribution could be exacted from public employee retirement benefits. Even a few percent would go a long way toward correcting inequities of the past."

Steve:

perhaps it was becasue I wasn't in Calpers, but we were able to opt out of SS. It wasn't mandatory but we all did because we knew we were going to get a lot more for our retirement contriutions.

Jack -
So you're now suggesting that the government should go to retired teachers and firemen and tell them that they need to tighten their belts and contribute 3% of their pensions to Social Security to make things more equitable for you? Aside from the the poor optics of this, I'm sure it would not pass muster in the courts. You don't change the rules of the game after the game is over.

Sorry that I'm not keeping up with this thread. I assure you it's intentional.

A few points I would like to make - again. Steve, you continue to ignore my points which directly address your concerns. That's certainly your right, but it is disingenuous argument.

True, people don't save enough money today. But the point is that they are already spending a full 15% of their earnings on retirement TODAY. It's just not going to them. And that's the problem that I am trying to correct. Let people keep their money. Let them invest it. Let them amass wealth. Let them control their own fate. And get government out of the retirement business.

My suggestion is that people take the same amount of money - the EXACT same amount people are already paying today - and put it in their own accounts. So, addressing your first point, I'm exchanging one mandatory program (payroll taxes) for another mandatory program (personal retirement accounts). So it's MANDATORY which eliminates the concern that they "won't" save the money. Just as they can't avoid payroll taxes, they won't be able to avoid saving for retirement, either.

Which brings me to my second point: "the past 30 years of experience with 401(k) plans has demonstrated that they aren't working well for most Americans." Really? Well, if instead of investing in private equity (like Mr. Madoff), you invested in one of the most conservative, broad-based, low cost investments imaginable, the S&P 500 index, you would have increased your investment more than 10 fold (143.25 on Feb 3, 1983 to 1593.17 today). Not exactly the stuff of Bernie Maddof, is it. And it's a broad based index easily available to anyone at almost no cost.

So please get this straight - no one is suggesting that we turn retirement accounts into casino gambling. As with IRAs, there can be rules, limits and standards. There are already standard investment profiles based on projected retirement ages available from every major investment firm like Fidelity and Putnam today. Your money is invested in a fund that is specific to your retirement age. Now that's not very difficult (or even novel), is it? So I look forward to your next installment of Bernie Madoff or Enron or that people can't possibly allocate that amount of money (when they are already doing so today).

But you never addressed the points that I brought up. What about people who "invest" all those payroll taxes and never collect a cent because they die early? And what about every SSI recipient being at the mercy of Congress who changes the amount that SSI recipients receive (or eliminate increases, which they seem to do pretty regularly today)? Because when you have your own retirement account - which for most workers will amount to a small fortune - it would be nice to pass this on to your children, or to use to buy a home. You can't do either of those with your $1,500 a month SSI payments, can you?

But the most important factor is getting government out of this business. Like flood insurance, retirement is something we can do for ourselves, even if it is done by a mandated program. That should sound somewhat familiar to you.

Will there be a cost to this? You bet. But eliminating one of government's biggest expenditures is certainly a good thing in the long run.

POGO -
Sorry that I've ignored your arguments. You seemed to drop out of the discussion a while back so I've been responding mostly to Jack & Menlo Voter.
As for ignoring arguments, you never responded to my observation that Social Security is more than a retirement system in that it also provides a survivor's benefit for spouse & children as well as a disability benefit, features that defined contribution plans don't address. How are these problems addressed in your new system?
I also have a problem with you inflating the retirement contribution to 15%. It makes your investment returns look better but, to compare apples to apples, why not keep it at the 12.4% contribution that currently exists?
You ask "What about people who "invest" all those payroll taxes and never collect a cent because they die early?" Well, if they have young children, the kids get survivor benefits until they're 18 or finish college. A surviving spouse will will get spousal benefits that continue into retirement unless they remarry.
I ask you, if a worker under your plan dies young, what good will the few thousand or tens of thousands of dollars in the 401(k)do for the surviving spouse & children? Once it's gone, it's gone and they're on their own.
Now I imagine you'll say that that's what life insurance and disability insurance is for. True in both cases I suppose. But if you're in a low wage job or are just starting out in a career, these are simply not affordable. Yet, if you pay into Social Security, your surviving family can count on some support.
POGO, you reveal your prejudice when you write "But the most important factor is getting government out of this business." You say this as if it is self-evident that government shouldn't be directly involved in managing a retirement system for its people, that "retirement is something we can do for ourselves". All I can say to that is that before Social Security, we did a pretty poor job of managing retirement - it basically didn't exist. For all too many workers, you worked until you died or until you couldn't work any more and then went to live with your kids or to the poor house.
More to the point, I don't see how you can be so willing to throw out Social Security in favor of a mandatory 401(k) for everyone when 401(k) plans have proved so vulnerable in the past 10 years. Did you read the article in today's Mercury News with essentially that title: "Financial Crisis Leaves 401(k) Plans Vulnerable"? The article points out how 25% of Americans withdraw a total of $70 Billion each year from 401(k) plans for non-retirement spending. The article had a wonderful quote: "A good pension helps people accumulate money, helps them invest money appropriately, and helps people pay out their pension for life, and the 401(k) fails at all three of those dimensions".
Fortunately we live in a democracy and the people are quite clear that they support Social Security and want it to be fixed. Only 12% believe it should be replaced.

Steve said: "Social Security is more than a retirement system in that it also provides a survivor's benefit for spouse & children as well as a disability benefit, features that defined contribution plans don't address."
It also includes a redistribution of income which is not addressed in public employee retirement plans. "The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent."
Why is this mandated for workers in the private sector, but not for most workers in the public sector?

Steve -

First, I don't have to "reveal myself." I have a long record of my libertarian posts. I think government should only do what people cannot do, or easily do, for themselves. A good rule to live by.

I have addressed the retirement part of Social Security because it is the biggest part and clearly the part that people can do for themselves. Comparing my mandatory plan with today's 401(k) is really apples and oranges. 401(k) contributions are not mandatory and that's the problem. I am proposing replacing the current MANDATORY payments that workers make today for other people's retirement with a new MANDATORY payment that goes for their own retirement. And unlike today's plan, which puts retirees at the mercy of government officials, my plan gives you YOUR money, which you can use for whatever purpose you wish, including passing it on to your children.

So, Steve, to your direct question, a direct answer. Not everyone who pays into SSI and dies without having received a cent in return has children or spouses. And most of those who die don't have young children either and those payments end at age 18. In my plan, in addition to insurance - which responsible people should have, especially breadwinners with families - the survivors would receive thousands, probably tens of thousands of dollars in the deceased person's account. That's their own money and that's the difference.

As for disability, you'd better address it pretty quickly because it's the fastest growing expenditure in government. I recall reading that a whopping 800,000 people applied for disability in one month alone last year... probably not a coincidence that they did so as their unemployment benefits expired. And it should scare you that people rarely get off disability very easily or often.

For now, I'll focus on a solution for getting government out of the retirement business. Of course, we can continue to borrow money to pay for these unsustainable benefit plans... out kids can always repay it.

POGO -
"Of course, we can continue to borrow money to pay for these unsustainable benefit plans".
Or,
- we can raise the ceiling on OASDI taxes above the current $113,000
- we can raise the OASDI rate from 12.4% (total)
- we can raise taxes on unearned income to match the tax that working stiffs pay on their income (that alone would solve much of the government deficit problem)
- we can grow the economy and jobs, which will result in increased OASDI receipts and reduced unemployment & disability expenses
- we can reduce the budget elsewhere to free up moneys owed to the trust fund
These are just some of the alternatives to your bleak assessment.
But bottom line, the Social Security Program is a very efficiently managed system that serves of the retirement, disability & survivor needs of 54 million Americans. It has taken in $2.7 Trillion more than it has paid out since 1980 in anticipation of the retirement needs of the baby boomers. This surplus was loaned to the government and forms the so-called Trust Fund. The trust fund represents a legal obligation of the federal government to program beneficiaries, the same as the T-bills I invest in represent the legal obligation of the government to pay me when they mature.
You're not suggesting the government default on its debts to its own people are you?

SSI has run a deficit of $50 billion for each of the last two years and it is expected to grow. Yes, I suppose you could fund those real cash needs by sending some of those IOUs that are in one drawer of the Treasury to those needy SSI recipients... but only if you live in Wonderland. And the tidal wave of baby boomers is just starting to hit.

Taxing your way out of the problem isn't going to work as long as the projected expenditures outstrip projected receipts. And as for that growth you anticipate, you may want to see what real economic growth was last quarter before you start layering on some more taxes.

My goal is to get government out of this business. With a mandated program and no additional funding from current wage earners, it is not only feasible, it would be an improvement for all.

The $50B is out of an account with THREE TRILLION DOLLAR in assets. That's why Reagan doubled payroll taxes.

Pearls already nailed pogo on that one: "Let's try again: Pogo, have you ever owned a treasury, a treasury fund or a treasury backed security? Or as you called them, IOUs."

I agree with POGO that we need to get the Government out of the this business. Investments, mandatory for ALL, would solve the inequity of the current public/private differential. A self (as in yours truly) managed system, such as my traditional IRA account, would be preferable.

Jack: You never addressed the inequity talked about above: payroll taxes are very regressive and give a free ride to the ultra wealthy. After all, you said several times that the thread was about inequities.

Overall? Yes, I get it. Pogo and Jack want SS and the rest of the New Deal to go away. Get over it, Social Security is here to stay. Bush took a shot at it before his Great Recession. Not another pol is going to have a better shot at it than he had.

Heck, a poll came today out putting Hillary in front of every GOP candidate for 2016.

In KENTUCKY and TEXAS. Web Link

Seriously, though, if Hillary runs and wins in 2016 and gets reelected, you may not see another GOP president in your lifetime. With the Latino/democratic demographic shift in Texas, for example, it will be utterly impossible for the GOP to be a national party in 2024 without earthshaking changes.

Earthshaking, as in California and several other blue states falling into the sea.

Social Security is here to stay. As Steve pointed out, a simple fix (removing the regressive income cap) makes it solvent through the baby boomers and then who knows, the payroll tax could even be lowered for the poor and middle calls after the boomers.

Jack -
You and POGO may want to get the government out of the retirement business but you are a small minority. AARP conducted a poll in 2010 and found the following:
1) A majority of adults age 18 and older believe Social Security is one of the most important government programs and that it provides financial security to older Americans and helps them remain independent. While many are concerned about the future of Social Security, their lack of confidence does not diminish their support for it.
2) The public is inclined to pay more to get the same benefits as today than to see benefits reduced.
3) The public overwhelmingly opposes cutting Social Security to help reduce the federal deficit.
So rant & rail against Social Security all you want, it's not going away in your lifetime.

Yes, we're just one tweak away from utopia. And why are the tweaks ALWAYS increasing funding instead of a rational re-examination of a highly flawed program that was started four generations ago? Just one more little tax and it'll all be perfect. The projections for our entitlement budget will soon crowd out most of our other government functions.

But I will say this, Steve - your points 1, 2, and 3 could have come from the Detroit auto workers, the Airline Pilots Association or the Syriza. Don't you dare touch our benefits - just give us more money. It works all so well, right up until the time it doesn't. And that future is inescapable. It's just that some of us face it, others refuse.

The ironic thing is that my proposed "change" takes the exact same money and gives it to the individual to use for their own purposes instead of to government. It is mandatory so funding is assured and the investments are restricted and conservative which limit the Enron arguments. And most of all, the money can't be conveniently "borrowed" by other parts of the government or even see the benefits reduced. It is yours. Use it. Pass it on to your children. Amass wealth.

But you are correct that this program probably won't be changed in my lifetime. But forgive me if I refuse to celebrate visiting our sins on our children.

Steve, my purpose in this topic is to share whatever retirement scheme the government forces upon those of us in the private sector, with those in the public sector. That may be Social Security, with it's redistribution of the wealth provision, or a more equitable plan.

"my purpose in this topic is to share whatever retirement scheme the government forces upon those of us in the private sector, with those in the public sector."

Funny. Seems like a great way to have started the thread, rather than all the beating around the Bush with the inequity talk, etc.. "escape the inequities of the Social Security system"

So all wrapped up. Steve points out that Social Security is here to stay because Americans love it; Pogo and Jack detest it. Congrats Jack, we've learned lots and come far (not.)

And to all, a good night. We're here Thursday nights, don't forget to tip your waitress...

I don't "detest" Social Security at all.

I simply want to replace it with something that's more efficient, will create real wealth for the middle class, improve our economy, promote self reliance, and get government out of something it has no business doing to free up trillions of government dollars for our children and their children. And I want to do it without taking any additional money from workers.

I think that's a reasonably worthwhile conversation to have.

POGO -
You see a highly flawed system. I see a highly effective system. My reasons for thinking this are based on 80 years of seeing how Social Security works:
Social Security efficiently manages the collection of FICA taxes from over 160 millions workers each year and the payment of benefits to 56 million. Administrative costs for this system are very small at about half of 1%. Social Security is an example of government at its best, working efficiently to deliver a valuable service to all of its citizens.
As a government run system, no money goes to bankers, brokers & fund managers that would reduce reserves, breed corruption, and lead to instabilities in the financial markets.
It is a system that has worked well for nearly 80 years, providing secure retirements to hundreds of millions and saving families whose breadwinners have died too young.
To prepare for their retirement, the baby boomers raised their FICA rates and have saved nearly $3 Trillion to supplement the reduced FICA stream from the smaller working population that follows them.
The $50Billion dollar deficit for the past two years that you rail about has been made up just by the interest payments on the Trust Fund - no loss in principal. In fact the value of the Trust Fund has continued to grow even it's been tapped to cover the benefits of the first wave of boomers entering retirement.
True, the Trust Fund will be tapped out in another 20 years or so and benefits will need to be reduced at that time unless changes are made between now & then. The changes will not need to be large or painful, as long as we don't keep putting it off.
It seems to me this is the discussion that we should be having here - how to fix the system - rather than this pointless discussion of why we should replace it.

POGO -
It gets back to the mission of Social Security, which is:
"To promote the economic security of the nation’s people through compassionate and vigilant leadership in shaping and managing America’s social security programs".
Social Security was not designed to maximize wealth but to ensure that no workers would suffer from extreme poverty by "providing a comprehensive package of protection against the loss of earnings due to retirement,disability and death."
It was seen as a supplement to, not a replacement for, individual initiative and planning. In fact the Social Security program encourages people "to supplement Social Security with savings, pensions, investments and other insurance".
This is where your 401(k)-type program fits it and I think many Americans view it this way: Social Security as the bedrock minimum for retirement with expectation of a more generous retirement coming from their careful investment of additional savings.

Why has such a noble plan been denied to public workers?

Jack -
As I mentioned above, almost all Feds are already covered by Social Security. CALPERS, from what I've been able to read, includes it's own disability & survivors benefits as part of the retirement program - something you should have already known if you'd cared to look.
CALPERS, incidentally, was founded in 1932, before Social Security began. I imagine that state governments that already had viable retirement programs at the time Social Security came along were grandfathered in as long as they provided comparable coverages. I doubt that the inequity you're so exercised about was even considered at the time.
Now Jack, you still haven't suggested any viable methods for correcting this perceived inequity. Nor have you even estimated the actual dollar value needed to correct the inequity, nor how many public employees would have to be taxed to achieve it or how much that tax would be. In short, you haven't really been very serious about proving this inequity exists, let alone how to fix it.
It seems me Jack that you're just using this spurious charge as another way to flog public employees, about whom, I've gathered from other posts, you're none too fond.
As I've suggested earlier Jack, get over it.

Steve, you miss the main point. It is not the disability & survivors part of Social Security that is the primary inequity (though my anecdotal story does address a minor inequity in survivor benefits), it is the redistribution of the wealth aspect in which public employees are not forced to participate.
I appreciate your comment, "CALPERS, from what I've been able to read, includes it's own disability & survivors benefits as part of the retirement program..." I am a bit surprised. How about a link to confirm that observation? I would be shocked, and would have to eat crow (prepared by a French chef, of course), if CalPers has a redistribution of the wealth aspect comparable to Social Security.

Getting agreement on the existence of the primary inequity is all I hope to accomplish here. I leave the remedy to our legislators.

Steve -

And 80 years ago, when Social Security was began, the ratio of workers to retirees wasn't 3 to 1, either. That's the problem with these programs (to paraphrase Margaret Thatcher), eventually you run out of other people's money to spend. Perhaps that's why you said: "...True, the Trust Fund will be tapped out in another 20 years or so..." A pretty stunning admission.

My suggestion is not to tweak the system but to get government out of this business and let people do this for themselves. And best of all, they can do it all with the exact same funds now being diverted to Social Security. The added bonus is creating real wealth through real savings.

But I can understand your aversion to self reliance. There seems to be a lot of that going around these days! :-)

> Pogo: : "...True, the Trust Fund will be tapped out in another 20 years or so..." A pretty stunning admission.

Stunning? Hardly. There's a $2.5 Trillion fund that "taps out", and when it does, Social Security pays 75% of benefits.

Yes, things are that good! With the biggest one time baby boom in our history hitting retirement, twenty plus years from now Social Security, with NO CHANGES, SS still pays 75% of benefits.

A simple fix is to remove the income cap or payroll taxes, thus removing one of the most regressive tax features in our system, and and Social Security is solvent for a century.

Probably even enough that we can start to increase benefits, making Jack happy.

Imagine that! Jack happy! Posting grateful, joyful notes of inequities solved on bulletin boards and blogs!

Our Happy Jack....

POGO -
As Ken pointed out, the baby boom bubble that's throwing things out of whack and reducing the ratio to 3:1 was anticipated. Nearly $3 Trillion were saved up over the past 30 years to cover this excess demand.
Very forward thinking and responsible, don't you agree?
Now, it turns out, looking 20 years down the road, this accumulated Trust Fund is not quite enough to cover anticipated needs. Don't you think we can be proactive - as Ronald Reagan and Tip O'Neill were in the '80's - to cover this shortfall? I don't want to repeat all the ways that it could be almost painlessly dealt with but it really isn't a big problem to correct. This would get Social Security solidly back in the black for the next century. And of course, once us boomers start to exit the scene, the ratio of workers to retirees starts looking better & better.
Why, other than the ideological prejudice of your libertarian thinking, should we get the government out of Social Security?
-The vast majority of our democracy solidly supports it - only 12% think like you that it should be replaced.
- Social Security has benefited nearly half a billion Americans since it began in the 1930's. Maybe no one gets rich from Social Security but no gets thrown into poverty if life throws them some curve balls. For the normal working stiff, it provides a solid retirement core that financial planners agree is important now that pensions are increasingly a thing of the past.
- Social Security is guaranteed, unlike your proposed 401(k) system where your retirement is at the mercy of the markets, where you need to worry should you retire in the down market, where you worry that you might outlive your savings and be out on the street.
- Social Security has an 80 year track record of always being there for its participants. Can you point to any 401(k)-based retirement system anywhere in the world that has a similar record of success?

Why has most of the public sector employers opted for CalPers or other defined benefit programs instead of Social Security? Why are private sector employers not allowed to do likewise?

Come on people, answer the question.

[Portion removed. Please don't use Town Square to attack other posters.]

Seems you got plenty of mileage out of your disingenuous topic, Jack.

Try another run for governor if you want to change it.

What was removed? The part about libertarians not liking Social Security?

Seems like listening to a libertarian's opinion about Social Security is like listening to a chiropractors opinion of back surgery, or an orthopedist's opinion of chiropractors.

As a Public employee that also paid into the Social Security system for more than 20 years. I can tell you that the government reduces the amount I can collect from Social Sercurity according to what I receive from Cal Pers. Just to let you know that the inequity is in those that make millions and only pay into Social Security for the first $100,000.

> Just to let you know that the inequity is in those that make millions and only pay into Social Security for the first $100,000.

Bingo.

Think Jack can survey monkey a couple fair questions about the inequities around us? (yes, I know opt-in internet polls are useless collection devices, its a rhetorical question, Gov...)

Lead question: Which is the greater inequity?

a) High income earners paying social security taxes on a small percentage of their income while low income earners pay the regressive tax on ALL of their income?

b) Some firefighters, teachers and cops participating in the CALPERS program instead of social security?

Or the libertarians can go off topic and rant about how they hate social security....

Here's the real inequity. Let's say someone retires from the State and their retirement calculation is based upon 2.5% per year for 30 years and salary of $100,000. That means they collect $75,000 per year in retirement. That's $6,250 per month. And that piblic employee could retire at 60.

Social Security - If that same person had been paying into SSI, the earliest they could retire would be age 62. If they did so then they would collect $1622 per month. If they waited until age 66 and 8 months, they could collect $2396 per month. And if they wait until age 70, a full ten years after the public employee could start drawing FULL retirement benefits, they would collect $3128. Can you say inequity?

There's a huge inequity between public employee pensions and social security. The public employee and private employee pay the same amount of their income toward retirement, yet the public employee draws anywhere from nearly four times to twice as much as the private sector retireee. This is equitable? Hardly.

Menlo Voter: Instead of providing a pension these days, most employers pay into an employee's 401K or equivalent. In turn, the employee can also add to the 401K with pre-tax dollars (in addition to their Social Security deductions). The example you just cited describes an employer that provides NO retirement benefits, more typical of a low skill job. Government employees typically hold very high-skill jobs- the PhDs of the USGS are a good example. Their pensions are part of their job benefits, which are typical of benefits given highly skilled workers. Most of those scientists would make a lot more in private industry. Their retirement package makes the compensation more equitable.

I am not a government worker, but I am a highly skilled worker and I work for a private Menlo Park firm that provides retirement benefits. My husband has a government job. Our jobs require about the same education and have similar responsibilities. He is paid about 20% less than me. He gets a pension, for sure, but if I'd plowed that additional 20% of my income into my 401K, my retirement package would be bigger than his pension.

You are comparing apples to oranges.

D. Donder -

Yours is a near-complete deflection from the subject, which is the cost of benefits. Government workers get paid less so they have better benefits. Makes sense... but unfortunately, that dog no longer hunts.

Even the Congressional Budget Office disagrees with you and that's across the entire spectrum of education (yes, the difference was smaller at the highest education level). Here's the link from the CBO website: Web Link

The key statement: "On average, the benefits earned by federal civilian employees cost 48 percent more than the benefits earned by private-sector employees with certain similar observable characteristics."

"48 percent"... and that was a quote.

Donder:

In the private sector SOME people's employers contibute to a 401k. Mine doesn't. I can guarantee you I'm not making more money than my public sector counterpart. In fact, I likely make less. So, in order for me to have the same retirement benefit as my public sector counterpart, I must plow MORE of my LOWER income into a retirement plan.

So again I ask, equitable? Same answer - hardly.

Menlo Voter- you cited an example of a worker with a $100K income. These folks usually get retirement benefits. If that is you and you don't have a retirement plan at your company, it is out of the ordinary. Perhaps you should be looking for a job with better compensation.

POGO -
An article in today's NYT talks about the new "Libertarian Paternalism" that you seem to be advocating. Employers, both private & public, are now requiring new employees to contribute 3% to 5% of pay into a 401(k) plan with a target date-type investment portfolio. Annual raises do not going to the employee but instead are used to increase their retirement contributions, eventually topping out at 13% to 15% of pay. Employees can opt out but only about 10% chose to.
This new "big brother" approach is being implemented because retirement experts agree that the 401(k) system begun in the 1980's hasn't worked well for most employees and needs to be made more pension-like if people are going to be at all financially secure in retirement.
Which begs the question: if pensions are so obviously superior to the 401(k) retirement system, why not just go back to pension-based retirements? Referring back to your earlier reference to the Dutch retirement program, I noted that their system is based largely on two government controlled pension plans with only a small 401(k) plan.
Anyway, check out the article and see if this is the system you want for us all: Web Link

Okay, let's try this one more time with feeling.

The plan that I am proposing, and the new plans that Steve referenced above are all MANDATORY plans. Pure voluntary plans, like IRAs and nearly every 401(k), fail because workers would rather have their money than devote some of it to their retirement. That's the reason they haven't worked out as well as we had hoped. But ask an employee who responsibly contributed to their IRA or 401(k) and you're talking major money.

Again, under a mandatory plan (ironically, like SSI!) - 15% of wages are put directly into a managed account with the worker's name on it at their own bank or brokerage. So it's a similar contribution as Social Security (or perhaps a bit more) but it's THEIR money. And we're talking about quite a bit of money, real wealth, in fact. For an average worker, it would be several hundred thousand dollars, for more elite earners (engineers, accountants, professionals) you would be talking about well over a million dollars. Do the math for yourself over your career and ask yourself if you'd rather have that huge stash cash to do with as you please or a check for $1,600 a month, subject to the whims of the geniuses in Congress.

And there are two huge benefits. If the worker dies, their family keeps the cash. Try that with Social Security. Secondly, the government gets out of this business entirely and people learn a little personal responsibility (even if it is forced on them). Imagine balancing the federal budget without having to worry about SSI.

Dropping SSI contributions with a 15% mandatory contribution starves existing SSI recipients and contributors.

Won't work.

Suggesting it would work from scratch is fantasy, as we are not starting form scratch. Fantasy belongs in sports fantasy leagues.

Not to mention that privatizing social security in a non-starter since Bush tried it just before the Bush market crash.

Donder:

I work in the construction industry. I'm lucky to be getting the wage I'm getting. Hell, I'm lucky to have a job. In '08 when the market collapsed we took major pay cuts just to keep a job. So while I appreciate your advice, I have to tell you, you don't know what you're talking about. At least as it relates to my industry.

Menlo Voter, you and your fellow construction workers and others in the private sector would definitely benefit if you could opt out of SS like those "skilled" public servants.

If you want a fantasy, try cashing those IOUs that are in your Social Security account. Unfortunately, that day isn't so far away.

Personally, I'd prefer to take the cash, invest it myself (conservatively) and live quite nicely without depending upon a few small crumbs from the government every month. And if I die, my pile of cash goes to my kids.

With regard to the need to keep those contributions from future workers to fund current beneficiaries, you may wish to google Charles Ponzi. I cannot think of a more selfish act than committing our children, who have yet to earn their first penny, to such a scheme for our own benefits.

"I cannot think of a more selfish act than committing our children, who have yet to earn their first penny, to such a scheme for our own benefits."

What's wrong with it? It's what our parents and grandparents did to us. ;-)

Jack:

I'd love to opt into Calpers. That is, of course, if they can remain solvent.

> Personally, I'd prefer to...

And that sums up the conversation.

Bush had political capital, both houses of Congress. Given the golden opportunity, the best republican brains couldn't come up with Pogo's perfect "Personally, I'd prefer to..." plan.

Instead, they came up with a half-(baked) plan to reward Wall St. And that was a couple years before the crash.

If we're going to come up with little fantasies that are completely ridiculous to implement, let me start...

Personally, I'd prefer to.... come up with a time machine and change those last couple of plays and have C-Kap run the 5 yards for the score, ftw.

Yup, personally, I'd prefer that.

Over reality.

Now, as afar as Menlo Voter bemoaning the lower wages for construction workers, how in the world do you tie that to this topic? Perhaps a new thread about employers hiring illegals without any penalty, the INEQUITY of illegals pushing wages for workers down. Do libertarians support the free market hiring illegals in the construction trade to drive Menlo Voter's wages down?

Barney:

you need to do a little work on your reading comprehension. I wasn't "bemoaning" lower wages for construction workers. I was pointing out the GROSS inequity in retirements granted public sector workers vs. SSI. Trust me, if CAlpers participents were able to opt out and into SSI, There is no way in hell they would do so. Unless of course they were STUPID. The system has been rigged so that public sector workers get better pay AND better retirement. That's thanks to public employee unions being able to buy politicians and their votes.

There was a time when public sector workers got better retirement because they got less pay. That isn't the case anymore. Can you say inequity? Public sector workers are over compensated at our expense. Period.

Barney:

one other thing, I'm in management. Illegals aren't pushing my wages down. They're certainly making my job more difficult, but they're not pushing down my wages. The economy did that. Illegals are pushing down the wages of what used to be known as "craftsmen." You can thank both republicans and democrats that for years refused to do anything about fixing our illegal immigration problem. Now, all of a sudden, they want to "do something about it." BS! Too late now for the ACTUAL craftsmen that used to be in the trades. They're long gone. All we have now are "installers" that have no clue as to the big picture of how their work integrates with the work of others. Try and produce a quality product when you're dealing with THAT mindset.

Just so you know, Libertarians believe in sealing the borders and dealing harshly with illegal immigration. That's one of the actual duties of the Federal government.

Barney -

Your children, or the two or three workers who will spend 15% of their wages to support this generation's Social Security benefits, won't thank you when they realize we've bankrupted their country.

Taking money from the relatively younger and poorer with few assets and giving it to the relatively older and richer with more assets is absurd.

And it will all be just fine... right up until the moment it isn't.

Menlo voter whines: "you need to do a little work on your reading comprehension. I wasn't "bemoaning" lower wages for construction workers. I was pointing out the GROSS inequity in retirements granted public sector workers vs. SSI."

Shall we reference Menlo's actual words?

"I work in the construction industry. I'm lucky to be getting the wage I'm getting. Hell, I'm lucky to have a job. In '08 when the market collapsed we took major pay cuts..."

Sounds like I comprehend Menlo's words just fine, even if she wants to change the meaning or narrative. Perhaps if she meant her words to have another meaning, she should re-read them for comprehension, before posting.

Comprehension?

Comprende!

Since Pogo and Menlo Voter want to get snippy, and make up stories about (capital L) Libertarian beliefs ("Just so you know, Libertarians believe..." Ha! According to what the nationwide movement of Libertarians national manifesto? Ron Paul?) I think it's time for me to bid adieu... au revoir, ladies...

Barney:

you conveniently ignore the actual point of my post. Why am I not surprised? Care to comment on substance?

snippy, snippy, snippy, Barney got it!

Her is MV's "entire" post: "Donder: I work in the construction industry. I'm lucky to be getting the wage I'm getting. Hell, I'm lucky to have a job. In '08 when the market collapsed we took major pay cuts just to keep a job. So while I appreciate your advice, I have to tell you, you don't know what you're talking about. At least as it relates to my industry."

Looks like a wage post to me too!

¡Comprende, amigo!

POGO-
Ponzi Scheme?!
You've got to be kidding! To trot out this old canard that last saw the light of day in the failing campaign of Rick Perry says you're either slipping into the non-reality-based world of Republican orthodoxy or you subscribe to their fear-based methods of political persuasion.
But don't take my opinion that Social Security is not a ponzi scheme, check out this article from the Economist that more clearly makes the case: Web Link
His opening paragraphs lay out the argument well:
"NO PONZI scheme in the history of the world has ever lasted 75 years. Ponzi schemes depend on garnering an ever-increasing pool of new investors to pay out returns to prior investors. When the potential pool of new investors runs dry, they collapse. This will occur when the scheme runs up against the natural limits of its recruitment strategy; in the ultimate case, it can't keep going past the point where the entire population is already subscribed."

"This should provide us with a hint as to why . . . Social Security is not a Ponzi scheme. The entire population of working Americans has already been subscribed to Social Security for decades, yet the system continues to pay out benefits on time. That is because the actuarial calculations underlying its revenues and benefits are sound."
He goes on to show a graph of Social Security Taxes and Benefits for a 100-year period starting in 1985 and then compares it to the plot of the finances of a ponzi scheme. No comparison.
The whole article is worth reading but especially the last paragraph, which show the worth of Social Security from the perspective of his family:
"My grandmother cast her first presidential vote for FDR, in 1936. He had passed the Social Security Act one year earlier. She began receiving Social Security checks in the year Jimmy Carter was elected president. She turns 100 in December, and the checks are still coming in. She has since been joined on the rolls by her two daughters. There is every reason to believe that their children, who have been paying taxes into the Social Security system for decades now, will also enjoy its benefits when they retire. Unless, of course, conservative politicians succeed in convincing working Americans that the whole thing is a "monstrous lie"."
Conservative politicians and, I would add, libertarians such as yourself.

I doubt you will ever find the word Ponzi in any of my writings.
Social Security has a redistribution of the wealth component which is absent in the alternative retirement plans available to public sector employees.

"The way Social Security benefit amounts are figured, lower-paid workers get a higher return than highly paid workers. For example, lower-paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings. The average replacement rate for highly paid workers is about 25 percent."

Why is this mandated for workers in the private sector, but not for most workers in the public sector?

POGO -
If we want to improve our retirement system shouldn't we look around the world and consider emulating those countries that do the best job of providing a secure retirement for their citizens? A recent global survey conducted by the Australian Centre for Financial Studies rated the US retirement system as #10 and in the bottom half of the 16 countries surveyed. At the top was the Netherlands, whose retirement system we've talked about above.
The Dutch provide all of their citizens with a defined benefit system very similar to Social Security. They supplement this with a "quasi-mandatory earnings-related occupational pension . . . based on lifetime average earnings.”
Proof of their success you ask?
In the US, financial advisors suggest people try to retire with an after-tax income of 75% to 85% of their pre-retirement earnings. In practice, US retirees average only about 47% of pre-retirement earnings.
In contrast, the average Dutch retiree collects 96% of pre-retirement earnings from their two pensions! Wouldn't you agree that a retirement system this successful is one that we should consider adopting?
Somehow, I don't expect you to agree.

Steve:

what are the income tax rates of those countries?

MV -
The Dutch have a progressive tax system like we do. For those under 65
- the tax rate on income under $25,400 is 33%
- for income from $25,400 to $74,000 it's 42%
- for income greater than $74,000 it's 52%
Someone earning $74,000 per year would pay $29,500 in income tax. Note that this includes income tax, mandatory pension, social security and state funded medical care payments.
To calculate the US equivalent in "taxes" you would need to include federal income tax, state income tax, payroll tax, 401(k) contributions, and health insurance. There health coverage comes with no deductibles or copays and their average retirement benefits are about twice that of the average American retiree.
Who do you think has the better system overall?

Steve:

having no experience with the other system, I couldn't say who has a "better" system. I do know that in this country public employees have a better system.

MV -
I have always agreed that the advantages of a pension system outweigh those of the defined contribution, or 401(k), system. The Dutch pension based retirement system demonstrates this.
So the questions seem to me to be twofold: 1) Why did we allow Congress to pass laws back in the 1980's that eliminated most company pensions and replaced them with the 401(k) plans that have been so mediocre/poor in ensuring comfortable retirements for workers? 2) what can we do to re-introduce the pension back into corporate America?
The Dutch have provided a model that works very well. Are we too proud accept that another country may have the better idea?

Oh, MV, nice job running away!

You asked what the tax rate was, Steve told you, now you claim, golly, you just can't decide!

"having no experience with the other system, I couldn't say who has a "better" system"

'Murican tax rates but with European benefits??!?!?!!?? Based on what you know, the taxes are similar (unless you are paying Romney Rates of 10%) and the benefits are greater (healthcare, retirement, full education, etc..)

Really? Golly, just can't tell?

Shall we add that it's a libertarian paradise, with liberal drug laws, as well as limited government sticking their nose into prostitution, LGBT rights, euthanasia, and abortion, etc..

liberturian:

I have heard both good and bad about various systems in Europe. Some claim it is paradise for retirees. Others claim the health system is terrible as one has to wait forever for treatment. So yes, not having any actual experience with any of those systems I don't know which is better. Do you have any experience with those systems other than what you've been told or what you've chosen to believe?

MV -
I want to comment on two things you said.
First, you stated: "I do know that in this country public employees have a better system." I agree with this. But I'd argue it's not because public pensions have gotten so much better as it is that the private retirement system has gotten so much worse. In the late 1970's nearly 50% of white color workers and 33% of blue color workers had pensions. Web Link By 2012 only 9% of private employers offered pensions to their employees, having largely shifted retirement responsibility to employees via 401(k) plans. Web Link "For companies that eliminated a traditional pension and now provide only a 401(k), total retirement benefits dropped from 8.7 percent of pay in 2002 to 5.5 percent of pay in 2008." Web Link
I believe you are misdirecting your anger at the inequity in the system at the wrong people. Rather than being upset with public employees who have mostly just maintained their benefits, you should be angry with corporate American who changed their retirement benefits to improve their bottom line and that of their investors, at the expense of their employees. Also, reserve a bit of bile for the Congress critters who, at the bidding of their corporate sponsors, passed the appropriate laws that made this inequity possible.
Second, you wrote: "Others claim the health system is terrible as one has to wait forever for treatment."
MV, you have the internet at your fingers and Google to take you to any facts or information you want to learn. You have no excuse for not checking out these claims and getting at the truth. When you do you find that the US has, in most categories, among the worst wait time for health services among western developed countries and that we pay nearly twice as much as the next most expensive country for this poor service. Web Link The Dutch as it happens have, in general, among the best wait times of the countries surveyed and for this superior service they pay only about 53% of the cost the Americans do.
So let's add it up and see what the answer is: the Dutch have much more generous retirement benefits thanks to pensions that everyone pays into; they have quicker access to health care; they pay about half of what we pay for this health care. I'd say, at least as far as these important aspects of the good life go, the Dutch have a definite advantage. Wouldn't you agree?

Steve:

based on what you're saying, I'd say it sounds like the dutch system is better.

As to public sector vs private retirement plans. We've had this discussion before. The public sector retirement benefits are better because they have a virtually unlimitted supply of money. If investment returns don't cover pensions they just go to the taxpayer and take more of what they need. Private industry couldn't do this and I think this is one of the reasons they got out of the pension and retirement business.

Their have been more than 2400 visits to this topic. Let's try to get back on topic.

Topic: Public employees and Social Security

Initial Post: "How do public employees escape the inequities of the Social Security system to which most of us have been subjected? Why do taxpayers have to foot the bill for investment losses incurred by CalPers and other public employee retirement funds?"

The simple answer to your question Jack is because public sector workers/unions have rigged the system.

Gov

2400 views, without being able to prove it, I'd guess that 2,000 views came from the ten or so regular (more than a single post) posters.

That want to support/bash SSI.

Plus a couple of us that check in regularly to see if there has been any new ground plowed.

Spoiler alert -- there hasn't been any. Except possibly the discussion of the Dutch system between Pogo Steve and Menlo Voter... that's a nice new twist on the usual anon blog bs on a supporting/bashing SSI post.

Props to Menlo Voter on his 2nd to last post, at least his first sentence.

Whatever the SS rules are, I feel robbed. After being a stay –at- home- mom (back then that was expected), I worked for a few years and then went back to university and got a teaching credential. Little did I know that I would lose 66% of my Soc. Sec. contribution because I now have a Calstrs pension. Since I haven't worked the 25 + years to get a semi-decent pension from Calstrs, I was expecting to boost it with my soc.sec. contributions. Alas no, from SS I will get only 33 cents on the dollar, up to a certain limit. So, where the heck did my Soc. Sec. money go?

Because my pension is so low, I'm better off getting the pension that a wife gets from her husband's contributions. I've paid in to 2 systems and will get zero back. I guess those of you who hate Soc. Sec. and who hate public employees’ pensions are happy about that. Just remember that the less money I have, the less money I have available to spend in our local economy.
The moral of the story: don’t become a teacher no matter how much you are told that mature teachers with work experience are wanted.

Jean:

actually, I'm not happy about your situation at all. You've been screwed. You have the public employee unions to thank for that screwing.

"I've paid in to 2 systems and will get zero back."

Sounds like you worked too few years in either situation. How many years did you work in each?

"I'm better off getting the pension that a wife gets from her husband's contributions"

And how many years as a "wife"?

Perhaps you should have done some basic research before your decisions.

Sorry, Jack, all this is off topic.

MV -
So here we have Jean, a bona fide public employee who's struggling in retirement with her public pension. How exactly does this demonstrate that the public employee unions have rigged the system, let alone that public employees enjoy inequitable retirements?
I think your answer is a little too pat and a lot too simplistic.

Steve:

her public employee retirement doesn't allow her to keep any of her previously earned SSI benefits. As I understand it that's a Calpers or Calsters regulation, not an SSI regulation. Hence my comment.

MV -
Nope. Flat out wrong. Social Security has a law called the Windfall Elimination Provision Web Link that significantly reduces SS benefits for anyone who receives a public pension. There is also another law called the Government Pension Offset Web Link that reduces Social Security that a public employee would otherwise collect through a spouse who paid into Social Security. Both are Social Security statutes and apply equally across the country. CALPERS/CALSTRS has nothing to do with either law.
MV - As I pointed out above, none of this information is secret - Google took me to this info in a flash. There's no excuse for you to be spreading false information when you can so easily check its accuracy.
Comment for JEAN: In reading about the WEP, I found this caveat under WEP that you might want to look into, if you haven't already:
"If you get a relatively low pension, you are protected. The reduction in your Social Security benefit cannot be more than one-half of the amount of your pension that is based on earnings after 1956 on which you did not pay Social Security taxes."
Don't tell Jack though cause this is the inequity that he's paying for and complaining about.

Steve:

I can do without the condecension. Thanks

MV -
Sorry to offend but I get annoyed when people substitute beliefs for facts. There's all too much of that happening today, which is ironic given that the ability to check on information has never been easier.

Steve:

sometimes people may think they have the correct information because they received it from a previously trustworthy source. Hence not bothering to fact check it.

Interesting article regarding public employee union strategy to combat "pension envy". Web Link

From the initial post on January 23 to February 18 there was considerable dialog. I thought my post on March 16 might stimulate more discussion.

Let me close a few loose ends:

Posted by yo, Gov, a resident of the Woodside: Skywood/Skylonda neighborhood, on Feb 11, 2013 at 12:46 pm

Think Jack can survey monkey a couple fair questions about the inequities around us? (yes, I know opt-in internet polls are useless collection devices, its a rhetorical question, Gov...)

Lead question: Which is the greater inequity?

a) High income earners paying social security taxes on a small percentage of their income while low income earners pay the regressive tax on ALL of their income?
My answer:
In retirement, high income earners only get 25% of the income upon which their contributions were based. Low income earners get 55% of the income upon which their contributions were based.
Removing the cap on income exarcerbates this inequity.

pearls o wisdom said:
Are you the guy that ran against Lantos a couple times? for supervisor? governor? some other positions?

Yes. Here's the Tom Lantos I ran against in 1984. Web Link

I have been an elected Member of the Sequoia Healthcare District Board of Directors since 2002. I received 32,628 votes in the last election. See Web Link
Employees (public) of the Sequoia Healthcare District pay into Social Security, AND receive up to 4% in 401k matching funds from the District.

I'm also the "guy" who led the successful campaign against the 1/2% San Mateo County sales tax euphemistically known as the "Best Schools Proposal (Measure A) in 1991. More than 65% of voters said "NO".

I have a few other political successes, most notably my Chairmenship of the Hawthorne Committee to Protect Private Property which successfully employed the referendum petitioning process to stop formation of the Hawthorne Redevelopment Agency in 1965. More than 2/3 of voters said "NO". Unfortunately, that "windmill" got up again to wreak havoc on the City.

Make that exacerbates!

What most people don't know about funding of Social Security.
Milton Friedman - The Free Lunch Myth Web Link