Social Security Solvency

Andrew Samwick writes

Vox Baby: It's Been Mostly Dead All Day: The Administration should have backed away from a plan that would introduce personal accounts without specifically restoring solvency. From the outset (e.g. the President's 2001 Commission) personal accounts have been the sugar to make the medicine go down. The medicine is restoring solvency. And we particularly applaud Ben Bernanke for making it clear that taking the medicine is something to insist on. If that sucked the life out of the House measure, so be it. Nothing prevents them from starting over and making improvements...

Comments

[James R. Smith]

Some time ago the United Airlines Pilots decided to invest their retirement fund in the stock market. Alas, the stock market took a dive and now United may be unable to pay the retiree...

[Ralph]

The article referred to above is in the July 31, 2005 NYT, "How Wall Street Wrecked United's Pension. In case you do not have a chance to read it, I would like to cite some highlights made in the article. Back in 1987, Doug Wilsman, a United pilot with fiduciary responsibility for the employee pension plan discovered that the pension fund had changed its conservative policy of investing in bonds timed to coincide with the expected retirements of United employees. Wilsman filed a grievance with his union, the Airline Pilots association. He warned of the riskiness of this approach because of the cyclical nature of the stock market. His prediction came true recently when the pension fund lost most of its value in the crash of 2001-2. United, which is in bankruptcy court, was able to stop funding of the pension plan, and it was turned over to the mother of all bankrupt plans, the PBGC. What of the money managers who steered the plan over the years. The main money managers, the Russell Investment Group, made off like bandits earning $125 million between 1999 and 2003. Congress has been investigating the details of what went wrong but no definitive reports are being issued. This is a pity because United is not alone. Other large corporations also have underfunded losing pension plans whose status continues to deteriorate while their worried employees face an uncertain future.

[Bruce Webb]

I feel like washing my hands. Without every using the word 'Medicare' anywhere in his comment on Samwick's site a certain 'JG' said this: "Now look at the future. The SS Trustees say that by 2030 income taxes will have to increase 60% from today's levels to fund promised entitlements, by 34% just to finance Trust Fund operations, and rising from there. [data]". Well for those intrepid enough to follow the "data" you would find that his source was talking about Social Security and Medicare trust funds combined.

Foul. Whatever you think of private accounts they have nothing to do with Medicare shortfalls one way or the other and dragging them in invisibly is no more fair than giving me a credit score weighted down by my brother-in-law's tab at the tavern.

There is a debate to be had on Medicare, and we will have it. But financially it has nothing to do with the solvency of the Social Security Trust Fund. Perhaps JG doesn't understand the difference, but certainly Professor Samwick does, or should. I left a couple of comments, it will be interesting to see who gets slapped down.

[save_the_rustbelt]

There is no solvency problem.

Just ask most Democrats.

This is a Republican plot. The GOP sponsored the baby boom and now has convinced old people to live longer just to embarass FDR and destroy his program.

Can we have some serious debate someday?