Social Fund News

Let’s say there is a good way to implement a whole new approach to retirement funding, pension planning, and Social Security? Would the politicians be interested? Let’s find out.

What if the new plan actually reduced payroll taxes, cut prices, created jobs, increased salaries, raised shareholder dividends, partially funded decreased healthcare costs, and was open to everyone?

Sound too good to be true, but it is actually doable. The reasons for that present system’s failure are mostly political; the solutions are clear, practical, and non-partisan. What we want is really a less expensive system for assuring that everybody is able to retire by having an adequate income, higher than that provided now by Social Security.

What we should need is a simple program, part mandatory and part voluntary, using experienced trustees who operate within the strictures of the prudent-man rule— a risk-minimizing legal doctrine that restricts investments to people that seek reasonable income and preservation of invested capital— SIBORAP Tier One investments.

The 2007-2008 stock market correction and credit crisis laid bare the weaknesses of all self-directed retirement accounts. To begin with, they are not (and not were) pension plan equivalents. These were cheap-to-provide replacements for fully funded defined benefit pension plans— supplemental programs at best.

Next, inexperienced investors were provided with an array of far-too-speculative investment options, and little if any training in basic QDI (Quality, Diversification, and Income) investment principles. The mutual fund industry was permitted to monopolize the self-directed plan market place.

Third, most participants considered their programs (401(k)s, IRAs, ROTHs, SEPs, SIMPLEs, etc.) in guaranteed pension plan terms. They were encouraged to do so purposely by mutual fund distributors and inadvertently by uninvestment-educated employee benefit representatives.

If great news ever becomes a real news story again, people would realize that both defined benefit type of pension and guaranteed fixed annuity contract payments were maintained throughout, and in spite of, this terrible financial environment. Why not cope with Social Peace of mind in exactly the same manner?

A Social Security Retirement Income Annuity, or SSRIA, invested 70% or even more in government guaranteed securities, might be phased in quickly like a mandatory alternative to the present Social Security program. The personally owned SSRIA would also be a voluntary investment option for all self-directed programs along with a guaranteed safe savings vehicle for after tax discretionary dollars.

Fundamental essentials bare bones parameters from the new program:

SSRIA contracts will be provided by newly formed subsidiaries of established insurance providers. They are deferred, fixed-income-only annuities without any commissions or fees paid by participants or employers. All companies provides identical products, insurances, and maturity options. A minimum of 150,000 new jobs could be created.

The contracts would include $10,000 of term life insurance, offer retirement at age 60 or over with just two immediate annuity options: life and joint life. No variable account features, or withdrawals, would be allowed, and all SSRIA retirement payments would be absolutely income-tax-exempt at each political level.

SSRIA providors would receive an investment management fee of .85% of the Working Capital under management, emphasizing the importance of both income generation and preservation of capital. Participant account statements would reflect ever-increasing cash balances, growing at annually adjusted, contractually guaranteed rates

Providor operating profits would be distributed 70% to parent company shareholders and 30% to finance a trust for retiree health care benefits. An associated tort reform bill would cap jury awards and attorney fees for private injury lawsuits against all healthcare providors.

SSRIA mandated contributions could be limited to 3% of pre tax total employment compensation; an additional 2% of pre tax earnings might be contributed voluntarily. Voluntary contributions to an employee’s SSRIA would be a required investment use of all self-directed employee benefit programs.

There would be no employer contribution to individual SSRIAs. Employers would be required to use their savings in any mixture of these options: increase non-executive salaries, hire additional workers, reduce consumer prices, and increase shareholder dividends.

Employees earning total compensation in excess of $1,000,000 would pay 10% from the excess directly to the retiree healthcare trust. All special compensation arrangements, including stock option plans could be banned. Bonus payments in excess of 20% of base pay would be pooled, and divided among all employees and shareholders, dollar for dollar.

Employees would be assigned randomly to qualifying SSRIA providors, one contract per person. Self-employed persons, dependent spouses and children, would be eligible for SSRIAs, and could be assigned to a providor by the Social Security Administration.

The Social Security Administration would oversee the operations, pricing, and investment practices of SSRIA providors, qualify companies wanting to become providors, and implement the transition in the existing program towards the new. The procedure might take as much as five years, unless peace breaks in the Middle East.

The transition towards the SSRIA program would commence immediately, beginning with employees under age thirty. Existing Social Security accounts could be frozen. Balances could be applied 50% in cash as an SSRIA deposit, 20% towards the retiree healthcare fund, and 30% like a Federal Income Tax credit. Older employees might have proportionately larger direct credits to their launch SSRIA accounts.

Another thought: All active government employees whatsoever levels, elected, appointed, or hired, could be transitioned in to the new SSRIA system.

OK, there it’s, a viable initial step change plan that most of us would choose. Call your representatives, newspapers, and favorite radio talk shows. Hey, it’s our money; let’s keep it this way.

The infant Boomer generation will begin taking early retirement in 2008. This year they’ll approach the standard retirement age of 65. As more Baby Boomers retire they will put a tremendous stress on the Social Security system. To date, no significant changes happen to be implemented to lessen the impact Baby Boomers will have about the Social Home security system. The longer any action is delayed the greater drastic the changes is going to be. Will these changes affect you? Should you be born between 1946 and 1964, then you are officially an infant Boomer and can be impacted by the Social Security funding problem.

The present and projected future financial status of the Governments’ trust funds is presented within the “The 2007 Annual Report from the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI).” The good news is the Social Security Administration (SSA) states there are no intends to reduce benefits for current retirees. Actually, benefits for current retirees are scheduled to continue growing with inflation. However, the 2007 OASDI Trustees Report also states, “Social Security’s combined trust money is projected to permit full payment of scheduled benefits until they become exhausted in 2041. Which means that unless changes are made soon, benefits for those retirees might be cut by 26 % in 2040 and continue being reduced every year thereafter. If you’re “younger” senior or a wanna-be senior, this is not great news

The Trustees of Social Security, the Comptroller General of the United States and also the Chairman from the Federal Reserve Board have said, the sooner we address the problem, the smaller and less abrupt the changes will be. The independent, bipartisan Social Security Advisory Board has also said: “As time passes, the size of the Social Security problem grows, and the choices open to repair it become more limited.” Addressing the issue now will allow today’s younger workers planning their retirement to possess a better assurance for the future of Social Security. The problem is not addressed as of 2007.

If Social Security isn’t changed we have a limited number of options later on. The options are to increase payroll taxes, reduce the advantages of today’s younger workers or borrow from the general fund. Social Security’s Trustees state, “If no action were taken until the combined trust funds become exhausted in 2040, much larger changes could be required. For example, payroll taxes could be raised to finance scheduled benefits fully in every year starting in 2040. In this instance, the payroll tax would be increased to 16.65 percent in the point of trust fund exhaustion in 2040 and continue rising to 17.78 percent in 2080. Similarly, benefits might be reduced to the level that is payable with scheduled tax rates in each and every year from 2040. Under this, benefits would be reduced 26 percent at the point of trust fund exhaustion in 2040, with reductions reaching 30 % in 2080.”

Social Security was never intended to be the only source of income in retirement and that especially applies to the Baby Boomer generation. It’s said that a comfortable retirement is based on a “three-legged stool” of Social Security, pensions and savings. American workers ought to be saving for their retirement on the personal basis and through employer-sponsored or other retirement plans. If your Baby Boomer isn’t preparing for retirement with a pension and/or savings to supplement their Social Security benefits, they will have to obstruct retirement or continue working part-time.