How Galveston, TX opted out of Social Security

[member 5645]

How Galveston, TX opted out of Social Security...

http://www.tppf.org/government/perspect/holbrook.html

Privatize Social Security? Galveston County Did


by The Honorable Ray Holbrook
Former Galveston County Judge



There currently is much discussion about the state of the Social Security System. Some are advocating radical change such as privatization of the system. These calls are met with concern that nothing like that has ever been done. Even if we ignore the success of other countries that have privatized this remnant of paternalist government, we need to look no further than the Texas coast for an example of successful privatization.

In the late 1970's it was becoming clear that Social Security was in financial trouble and that Congress was not dealing with it. What was less known was that local governments had an option to withdraw from Social Security and set up their own retirement programs. The Social Security Administration did require, however, a two-year notification prior to withdrawal. Galveston County submitted notification in 1979 using the ensuing two years to develop an alternative that would cover all county employees.

The Commissioners Court wanted a plan that had the exact, or better, benefits as Social Security at the same cost to the county and the employees. The Alternate Plan developed comprised a life insurance element for employees which would protect families of deceased employees, a disability insurance element as good as Social Security, and a retirement element with annuities purchased from major life insurance companies.

A calculated decision was made not to invest in the stock market, even though retirement income would have been higher if that had been done, probably twice as much. Nevertheless, retirement income for employees with 20 to 40 years of service is calculated to be two to five times the retirement income of Social Security. Disability insurance pays 60% of salary up to $5,000 per month and life insurance is three times annual salary up to $50,000 per year, i.e., a total of $150,000.

There was, of course, no guarantee this plan would be as successful as designed; and there was considerable opposition from labor unions, minorities and other traditional supporters, including many elected officials. Social Security representatives debated the plan in the employee meetings. By then a majority of the Commissioners Court were strongly supportive of the Alternate Plan. An election for all county employees was scheduled. The election carried by about three to one in favor of the Alternate Plan and the Commissioners Court voted four to one to implement it on Jan. 1, 1981.

The Alternate Plan has been successful for the past 18 years with a return on retirement investments of about 6-1/2%. That is at least three times the return on a like investment in Social Security right now. Even though the return from a stock market investment would have significantly increased the actual return, there was much less risk potential in buying annuities with guaranteed returns. Furthermore, the investments in life insurance annuities are the same for all employees and are handled by an outside company that was chosen through a bid process. There is no need for each employee to be an expert in investments and there is no chance one employee will lose everything and others will make a mint.

Those who criticize Social Security privatization because of the stock market ups and downs or the lack of investment knowledge of many employees have not done their homework or they would be aware of what has been done in Galveston County. Each employee has an individual retirement account which is available upon retirement or is owned by their families if the county employee/retiree dies. In addition the families also receive life insurance.

Brazoria and Matagorda Counties joined Galveston County in the Alternate Plan in 1982 and Harris County along with some 50 other counties were ready to join when Congress passed a bill in 1983 to save Social Security. That bill increased taxes, gradually raised the retirement age and closed the door on other local governments withdrawing from Social Security. Ironically, it was authored by then Congressman Jack Brooks of Beaumont.

There is now extremely high approval of the Alternate Plan among officials and employees as well as in the community and the most ardent proponents of big government. Congress should closely examine the Galveston County plan and use it as a model for the nation.

There are efforts to reform Social Security at both the national and the state level. On the state level both Oregon and Colorado legislatures have passed resolutions urging the federal government to allow them to opt out of Social Security. Special congressional action is required to override the prohibitions of the 1983 act. Opting out would allow them to create their own plans that would cover all workers.

At the federal level the plans range from true reform, such as the creation of personal savings accounts, to patching the current system with increased taxes, decreased benefits, and increased retirement age in order to allow it to continue to limp along. Several pieces of legislation and plans have been floated during the past few years. The strongest is a plan that would create some form of personal savings accounts. These accounts would be funded by taking five percentage points of an employee's Social Security payroll tax. Employees would be allowed to direct these accounts within certain limitations.

Alternative plans have worked. There are many happy employees and retirees from forward-thinking Texas counties that could attest to the benefits of embracing these alternatives.

The Texas Public Policy Foundation is a San Antonio based think tank dedicated to the principles of limited government, free enterprise, private property rights and individual responsibility.

 

[Zero]

That's pretty small-scale, phatmonkey...how would that work on a larger scale?

 

[R0man]

The article discusses how Galveston County in Texas successfully opted out of the Social Security system in the late 1970s and implemented their own retirement plan for county employees. This plan, known as the Alternate Plan, provided employees with life insurance, disability insurance, and retirement annuities from major life insurance companies. The plan was designed to have the same benefits as Social Security but with a higher return on retirement investments.

The article also mentions that other counties, such as Brazoria and Matagorda, joined Galveston County in the Alternate Plan and that there was a high approval rate among officials and employees. However, in 1983, Congress passed a bill that prohibited other local governments from withdrawing from Social Security.

The article argues that the success of the Alternate Plan should serve as a model for the nation and that there are current efforts at both the state and federal level to reform Social Security. The article suggests that allowing individuals to have personal savings accounts funded by a portion of their Social Security payroll tax could be a viable solution.

Overall, the article presents the case for privatizing Social Security and highlights the success of Galveston County's Alternate Plan as evidence that it can work. It also suggests that other counties and states should have the option to opt out of Social Security and create their own retirement plans.