The Ryan Plan part 3: Social Security and jobs
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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