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January/February 2005 IBEW Journal

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Risky Business

A lot of people groaned at the sight of their 401(k) statements during those recessionary years of 2000-2002. Hard-earned income put away for a brighter retirement was not growing with interest. Their accounts were actually losing money. An overhauled Social Security system with personal investment accounts means retiree income would depend on the ups and downs of the market.

Because the stakes are so high, private retirement accounts would require a higher level of investment understanding than many individuals possess. Terms like asset allocation, market capitalization and diversificationfundamentals of investment decisionsare not second nature to most people. Mistakes in investment strategy could result in reduced market returns or financial ruin. A commonly repeated truism in the investment community is that people spend more time planning their vacations than their own retirement.

"Many people dont have the time, training and expertise to select stocks and mutual funds," Reidenbach said. "While most investors simply chase investment results and dont have a clear investment strategy, professionals have reams of research and consultants to assist people in their portfolio selections."

While retirees would not be guaranteed any returns if they place their money in stocks and bonds, Wall Street investment firms stand to make billions. What is now a federal agency would be transformed into a cash-generating profit machine for financial sector money managers who would be generating profits through fees and commissions.

"Theres no excuse for taking a gamble to invest in private accounts and creating budget shortfalls as a time when its clear our pension plans are under siege," IBEW International Secretary-Treasurer Jerry OConnor said. "One of the things we can do is stand firm. Individual retirement accounts are not in the best interest of most Americans."

Social Security in Perspective

Despite rhetoric that Americans can expect to become increasingly frantic in the coming months, Social Security is not broken. Actuaries estimate that Social Security can meet all of its anticipated obligations until at least 2042, and possibly 2054. At that time, it is expected that the system will still have enough income to pay out around 80 percent of scheduled benefits. The Congressional Budget Office has concluded that Social Security is more financially sound today than throughout most of its 70-year history.

"This is a problem thats well into the future," Reidenbach said. "But not only is it imperative for us to address Social Securitys funding shortfalls, we are obligated to do so in a safe, prudent manner. Social Security should remain an economically viable, self-perpetuating source of security for millions."

Congress could also implement changes to strengthen the current structure of Social Security. In the past, proposals have been made to change the law to allow Social Security administrators to invest a portion of its trust fund in low-risk stocks or stock funds. Current law only allows investment in safe but low-yield treasury securities. Congress could raise the cap on the maximum level of income, currently $88,000, subject to Social Security taxes. Some have proposed raising the retirement age even further, but the IBEW, like many other unions and organizations, opposes raising the retirement eligibility age, given the physically demanding nature of much of the work members perform.

Such changes are not without precedent. Since 1935, Congress has tweaked Social Security to account for changing demographics. In 1983, it phased in a gradual raising of the retirement age to 67 to receive full benefits and increased contribution rates, allowing the establishment of a trust fund in anticipation of the baby boom retirements occurring now.

AARP, the largest and most influential association representing retirees in the United States, has announced its opposition to any plan for Social Security privatization. In a letter to members, AARP President Marie Smith said such a move would "make the problem worse, not better."

"The changes needed dont have to be drastic, and the guarantee Social Security provides is one worth strengthening, not replacing," Smith said. "Taking some of the money that workers pay into the system and diverting it into newly created private accounts would weaken Social Security and put benefits for future generations at risk."

President Bush announced in December that he would not advocate raising payroll taxes to pay for the transition to private accounts.

A Promise to Keep

Americans value Social Security. A post-election survey by the Institute for Americas Future found that only 31 percent of respondents said that individuals should be allowed to invest a portion of their Social Security funds in private retirement accounts.

"A lifetime of hard work should not be rewarded with a gold watch and a ticket to the races," President Hill said. "Social Security should be available to everyone, not just the lucky ones."