Thursday, March 7, 2013

Issue 28 Paul Ryan Plan Part 3 March,7,2013

The Final part....read it and don't weep. ;)

The Ryan Plan part 3: Social Security and jobs

            America’s favorite government program is Social Security (SS).  It was established as a temporary program to aid the elderly who were discriminated against job wise during the great depression.  SS was also established as an incentive for the elderly who were working to retire and thus make way for younger workers.  Needless to say, the temporary program became permanent, but today SS is threatened with insolvency.  Congressman Paul Ryan (R, Wisconsin and the current vice presidential hopeful) has proposed a reform to fix the problem once and for all; it’s been dubbed? Or it’s called “The Ryan Plan.”  Ryan has even added reforms to the Federal jobs program to help people have and keep their jobs no matter how the job environment may evolve.  This has the added benefit of ensuring that individual workers will have a job to contribute to SS and secure their own personal retirement.

            According to the Social Security Trustees, Social Security is going broke. Congress has raided the fund multiple times to fund their pet projects and meet cost overruns.  Also, more and more people are retiring with less and less people putting into the system resulting in a fiscal glut and causing seniors to have their benefits cut.  The rate of return for SS now is 1% to 2% but our children are expected to have a rate of return of less than 1%.  In short, SS will not be able to meet the demands placed on it for future generations rendering it a useless program that helps no one.

            There is an alternative to Social Security’s collapse, and that is Congressman Ryan’s SS reform.  First of all, people age 55 and over are unaffected, while all those under 55 will have a choice to go into the new system with the same guaranteed benefits as traditional SS or stick with the current program.  The new system calls for personal savings accounts with a guarantee that no matter the fiscal situation of the country (inflation, market down turns, etc) the recipients will get their money.  For those choosing the new system, the  personal account option will be phased in for easier transition with the first 10 years having 2% of the initial amount of $10,000 annual payroll tax going into the account and 1% for every dollar after that.  That initial amount of $10,000 is indexed for inflation to account for any changes in the value of the dollar.  After, the first 10 years of transition, the initial amount will have 4% taken out and 2% for every dollar after that.  Then in the next 10 years it goes to 6% and 3%, then finally 8% and 4% for an account averaging 5.1%.

            To ensure these accounts remain physically sound the money is invested in approved bonds and investments by the Social Security personal savings account board.  They administrate by choosing funds where contributions to personal accounts are deposited with the board being held responsible for all administrative expenses and all investment options offered by approved non-governmental firms.  The board will consist of five (5) members, each with a four (4) year term, and appointed by the president with two (2) appointees chosen after being recommended by the U.S. Congress.  As to qualifications, they must have “substantial experience, training, and expertise in the management of financial investment and pension benefit plans.”  The investment options are the same as provided to the members of Congress and Federal employees, but my question is, why not have the same money managers who insure Congress’ investment also govern the rest of the American peoples under this new plan?  Even better, why not just place us in system that Congress and the rest of the government uses?  These questions should be answered.

             Investment in this part of the plan works as follows: you start in Tier 1 where you invest in low risk instruments until a low threshold is reached upon which you enter Tier 2.  Tier 2 is when you are automatically enrolled in a “lifecycle” fund which adjusts your investment portfolio based on age.  A form of risk adjustment will be applied where accounting for your age your money will be invested in certain type of equities and bonds.  However, in Tier 2, you may also switch the “lifecycle” option to either a: 1. a government securities investment account; 2. a fixed income investment account; 3. common stock investment account; 4. small capitalization stock index investment account; or, 5. an international stock index investment account.  Once you have achieved a sum of $25,000 you enter Tier 3.  In Tier 3, you may choose to invest in additional non-government options that are pre-approved by the Social Security personal savings account board.  The best part of this plan is that the money in the account is 100% yours which is in stark contrast to the current Social Security program that allows the government to borrow against the fund—because by law the money in the current system is not really yours.  The money in the reformed program proposed by Ryan is your money and your property.  In addition, your earnings when you collect are not taxed, thanks to Ryan’s tax plan that prevents double taxation.  Also, because it’s your account, if and when you die you will be able to pass on your account to a beneficiary or estate from either your account or an annuity.  Yes, there is an annuity which must be purchased upon retirement to receive your benefits. 

            You purchase an annuity to provide your monthly payment, but only when your account has reached an amount where your payout is equal to of 150% of the poverty level or larger with any excess money provided to you in a lump sum.  To purchase an annuity, you must buy one from an office known as the Annuity Insurance Authority (AIA) (a government office to be created as part of the Ryan plan) which will provide all options for individuals to purchase their annuity.  However, I don’t understand why we have to pay to get our money.  Shouldn’t it be automatic for our accounts to automatically convert to an annuity upon our sending our notice of retirement once all the financial criteria for the account are met?  So it is a bit confusing when Ryan’s plan seeks to make sure that we finally own the money in Social Security, but still makes us pay the cost of converting to an annuity.  As a side note, but an important one, under the Ryan Plan, there is no change to the survivors and disabled benefits under SS.

            For those under 55, the Ryan plan will implement progressive price indexing (a mix of wage and price indexing) for initial SS benefits.  If you make less than $27,700 per year (adjusted for inflation) you will continue to get your benefits based on wage indexing which inflates the value of your money allowing poorer citizens to get more for their money.  If you make $27,700 to $149,900 a year, your benefits will be adjusted upward by a combination of wage and price indexing, with adjustments becoming oriented toward price indexing as you proceed up the income ladder.  For example, if you have an income equal to the halfway mark between $27,700- $149,900, 50% of your benefit will be wage indexed and 50% will be price indexed.  Individuals making over $149,900, after retirement, your benefit will be solely adjusted through price indexing.  All will see their benefits grow with inflation under the Ryan system and the progressive price indexing is more accurate and thus pegs the cost of living adjustment to a far more realistic measure. 

            Also under the Ryan plan, if receiving the personal account option, you may retire early if your account contains an annuity equal to 150% of the poverty level (those in the current system will be allowed to retire early if their payout equals 120% of the poverty level).  To stave off a fiscal glut, Ryan gradually raises the retirement age to meet with the growing life expectancy of Americans.  Again, only for those Americans under 55, the retirement age will ultimately be age 70 by advancing the current Reagan transition age of 67 by a year then increasing the retirement age by 1 month every 2 years.  However, those who wish to retire early are not affected by this age change, and neither are those who realize that under this plan, the longer you wait to retire, the higher payout you will receive.     

            Retirement means nothing if you don’t have a job to fund it, so Ryan tries to fix the federal jobs training program to make it more effective for those who use its services.  Originally, the program was adjusted under the workforce adjustment act (WIA) in 1998 to consolidate existing job programs, aid in job training and help workers become more marketable.  For the most part it helped, but failed to aid any workers who were laid off.  WIA did not end duplication and there is no way to measure the current programs success and failure rate because the existing 49 that are run by 8 different agencies have no standard way to measure success.  Ryan seeks to change this by creating a performance metric which requires every federal job program to track the following; 1 type of training provided and its cost per student; 2 employment status immediately after training and 1, 3, and 5 years after training; 3 whether or not the trainee is working in the field they trained for in order to determine if training led to employment; 4 participants income two (2) years before and five (5) years after training to see if training led to increased income; and 5. Participation level in Federal support programs like supplemental income and Temporary assistance to needy families (TANF) before and up to five (5) years after to see if training led to self sufficiency.  The plan does not prohibit programs from creating and adding additional measures of performance.  With this, the government and us the American people will know how effective the programs really are and when to call for a change.

            For the sake of transparency as well as to prevent wasteful spending, the Department of Labor (DOL) will provide publically annual performance and spending data for all federally subsidized job training programs on one centralized website.  Additionally, the site will include data on program administrator salaries, administrative expenses and expenses spent on the students.  The DOL will conduct periodic control group studies to compare participants (using the performance metric) who are using the subsidized training to individuals who did not receive the training but are in similar life and economic situations.  In addition, the Inspector General of the Government Accountability Office (GAO) and DOL will conduct a periodic audit to insure that outcomes are not due to trainees being selected because they are likely to succeed or have successfully completed the program.  The GAO will also conduct studies to report on successes and failures and any form of duplication to Congress within one year with a report every two years analyzing the results of the program.

            The job program also requires competitive bidding for all private contractors to receive job training grants (excluding block and formula grants) with the DOL giving priority to grant proposals that “leverage private sector investment.” If the private program fails to help participants succeed, renewal of job training grants will be denied.  Flexibility will also be offered by the new plan.  Currently those who are helping workers in the job program must go through a step by step process ignoring what the workers immediate needs, while the plan allows for steps to be skipped or to be done in a different order such as offering a training voucher first rather than as the last step in the process.  Ryan’s plan also tries to increase awareness of job training opportunities via public broadcasting by giving the broadcaster incentives (what these incentives are is not clear) and requires all job training programs who receive grant money to conduct lifelong awareness campaigns.  However, I question the idea of advertising what I can only see as a form of welfare, and another mandate that costs businesses money and ad space which could be better used to advertise for businesses seeking more customers.  What I do like though is that the plan allows for States to present to the DOL a three year plan to improve upon the existing outcomes with a three year waiver on existing regulations.  If successful, the waiver will continue to be issued with the new idea serving as the new model.  Of course failed ideas will result in the return to the established set of rules. 

            Overall, Ryan’s Social Security plan is a must.  As an American starting out in life, I do not expect to see any benefits from Social Security.  And thus have already made the commitment to not rely on it for my future retirement needs.  So I’m saving up early.  I do believe that Ryan’s idea will provide a greater payout for those who choose the new system and will relieve some of the burden on the existing monstrosity of the current system.  I also like how it uses investments to allow for a greater payout once seniors are eligible to collect and that those who normally would be financially incapable of investing (the poor) would finally have a chance to invest in the market.  Of course as a by product of this, the market will grow with all the new investors.  On the other hand, I’m not a big fan of the job portion of Ryan’s plan.  While I agree with the new performance metric and the multiple ways of finding waste and preserving transparency, I would much rather see all 49 programs either consolidated; all 8 agencies consolidated; or a return to where job training belongs, at the local and State level of government, with private industry saying what positions are available and/or paying for the training of said individuals.  Job training by government is the same as food stamps, a form of welfare, and any effort to reduce the role of welfare in our society and make Americans self sufficient is a must.  My biggest concern however has to do with the Social Security plan.  With all that new investment in the market driving growth, who is to say that the government will not have those who monitor our retirement investments work a little magic in an economic downturn or invest in a pet project like the failed Solar panel company Solyndra?  Some form of way to prevent this from occurring is needed.  Lucky for us, Ryan clearly states in his outline of his plan that it is subject to change, change that I believe will make the plan even better. 

I hope this helped those who wished to know more of the details that our politicians usually lack.  Though I did have to condense the Paul Ryan budget plan from 99 pages to these 3 posts which total 15 pages typed.  Thank you as always for reading and see you back soon for more interesting and hopefully fun articles for you to read.

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