Jewish World Review Aug. 4, 1999 /22 Av, 5759
Few people know that about 5 million Americans employed by state and municipal governments do not pay into Social Security. Under the provisions of the 1935 Social Security Act, state and municipal governments could opt out. This Social Security loophole was closed in 1983; however, Congress permitted those 5 million employees, as well as about 100,000 clergy, to remain exempt from paying into Social Security.
Part of President Clinton's plan to "save" Social Security, and championed by Sen. John Breaux, D-La., is to force previously exempted employees into Social Security. If 5 million more workers are forced into the system, it would bring in an estimated $11 billion over 5 years. Instead of Social Security collapsing in 2030, it would collapse in 2032 and there'd be 5 million more Social Security obligations. Clinton and Breaux's proposal is standard for any Ponzi scheme -- to keep the scheme going, you have to round up more participants.
Last April, 12 senators, including five Democrats -- Diane Feinstein, D-Calif.; Barbara Boxer, D-Calif.; Christopher Dodd, D-Conn.; Richard Durbin, D-Ill.; and Edward Kennedy, D-Mass. -- descended on the White House to demand that President Clinton not support forcing 5 million of their constituents into Social Security. They warned of the adverse impact on employees in terms of lower rates of return and lost flexibility.
J.T. Young, chief economist for the U.S. Senate Republican Policy Committee, points out a real-life example of the inferiority of Social Security compared to municipal pensions. San Diego city employees are required to put at least 3 percent of their salary into a pension plan (and may contribute up to 7 percent). Say that a worker with a constant salary of $32,000 puts a minimum of 3 percent of his salary into a defined-contribution plan that goes into a mutual fund paying an annual rate of 7 percent. Upon retirement, that worker will have $293,385 in constant dollars. Such a return is far superior to Social Security's zero to 2.5 percent rate of return.
If currently exempt workers are forced into Social Security, they'd also lose the flexibility of their municipal pension plans. Municipal pension plans typically award partial benefits for partial disability. Social Security provides benefits only when the individual becomes totally unemployable. People in high-pressure jobs like police and firefighting sometime require early retirement. Under Social Security, retirement benefits are not available until age 62. It doesn't take a rocket scientist to figure out why municipal employees don't want to be in Social Security.
When politicians boast to you about the wonders of Social Security, you should ask
them: "If Social Security is so wonderful, how come people have to be pulled kicking and
screaming into it? If it's so wonderful how come you're petitioning Clinton to spare your
municipal employee constituents from being pulled into it?" I bet they will fork you