Can Americans really have their cake and eat it, too, regarding Social Security reform?
Critics of President Bush's Social Security reform plan argue that individually owned Social Security accounts cannot provide improved retirement benefits without also introducing undue stock market risks. But a Texas retirement program shows how to improve upon Social Security without introducing undue financial risks. My nomination for American Hero of the Month is the man who engineered the shift to that wealth-building retirement system — Judge Ray Holbrook. A bit of history: Until the 1983 Social Security "reform," local governments could opt out of the Social Security system if they provided an alternative retirement plan. In 1981, three Texas counties — Galveston, Brazoria and Matagorda — launched a retirement program that offers a much better deal than Social Security, without introducing any significant financial risks to employees.
Galveston's plan is a resounding success. Retired Galveston County Judge Ray Holbrook, as his county's chief elected officer, oversaw what is called the "Alternate Plan" from its inception until his 1995 retirement. Holbrook recently explained the plan and its impacts in testimony presented to the President's Commission to Strengthen Social Security. Here's how the Galveston Alternate Plan works: Workers' payroll taxes are deposited in personal retirement accounts that are then used to purchase commercial banking and life insurance products already available in the marketplace, such as certificates of deposit and annuities, as well as conservative government and commercial bonds. "It was this approach that sold my colleagues, and me," Holbrook said, "because it essentially eliminated risk from the program." "Our plan provides better retirement, survivorship and disability benefits than Social Security," said Holbrook, a National Grassroots Leader for the United Seniors Association. "Our plan provides a better rate of return — between 7 percent and 8 percent per year, compared to less than 2 percent under the current Social Security system. And our plan uses no risky investments, only commercial banking products, annuities and bonds that provide guaranteed fixed-interest rates and no risk." Because Alternate Plan accounts are individually owned, accumulated savings can be passed on to heirs. That's not just theory. As Holbrook explained to the commission, when a county commissioner recently died, the commissioner's widow received a $255 death benefit from Social Security. That's all. The Alternate Plan, however, paid her a lump-sump survivorship benefit of $150,000, plus she is entitled to a reserve account of $125,000, available to her at any time. Her benefits are more than 1,000 times better than what Social Security offered! The existing Social Security system provides paltry returns on contributions. But that doesn't mean reformers must chase higher risk stock investments. In Texas, the Alternate Plan provides a rate of return on retirement account contributions four to five times better than those offered by Social Security, without significant added risk. That probably would be an easier sell to Americans well aware by now of stock market risks.
Art Linkletter is honorary national chairman for United Seniors Association. E-mail to ArtUnitedSeniors@aol.com