President Highlights Social Security Plan’s Benefits for Latinos

President Bush pitched his Social Security restructuring plan to Latinos on Wednesday, saying his approach would extend the benefits of ownership to low-wage workers who otherwise might not save for retirement.

Bush told Latino business owners that the restructured retirement system he had in mind would maintain currently promised benefits for lower-paid workers, but give them the opportunity to channel part of their payroll taxes into investment accounts that they could control and pass on to their heirs.

“That’s the great promise of America,” Bush said. “That’s what we’re all about. You come here, you work hard, you realize your dreams, and you have a chance to build something for your family.”

Bush’s remarks to the Latino Small Business Economic Conference were part of a White House effort to tailor the president’s Social Security campaign to specific ethnic, demographic and political constituencies.

But representatives of several organizations opposed to Bush’s plan said that the more Latinos learned about the investment risks and benefit changes that would accompany personal accounts, the less they liked what they saw.

“Now that the president is beginning to disclose details, we are beginning to see some of the devils in them,” said Rep. Xavier Becerra (D-Los Angeles), who heads the Congressional Hispanic Caucus task force on Social Security.

Bush has made Social Security restructuring the top domestic policy priority of his second term. For months he has been trying to generate public support for taking steps this year to close the retirement system’s long-term financial shortfall, and to let workers born in 1950 and after divert up to a third of their payroll taxes into individual investment accounts.

Polls suggest that his campaign has not generated a strong public mandate for his approach to restructuring, or punctured a solid wall of Democratic opposition in Congress. Bush may have made the task even more difficult last week by expressing interest in a formula that would preserve currently promised benefits for low-wage workers but reduce future payouts to middle-income and higher-paid retirees.

In a background briefing with reporters Wednesday, senior administration officials took issue with the way the plan had been characterized by opponents. They said it was a “false choice” to compare benefits payable under the new formula with those scheduled under the current system, because payroll tax collections would be insufficient to support them over the long run.

Social Security officials estimate that benefit payouts will begin exceeding tax collections in 2017, and the retirement system trust fund will be depleted in 2041. At that point, current law would require a 26% benefit cut. Under the “progressive indexing” benefit structure backed by Bush, an average wage-earner retiring in 2045 would have benefits cut by 16%, analysts estimate.

In his remarks to the small-business group, Bush said his goal was to make sure Social Security “functions well for a young generation of Latinos and people from all walks of life.”

Bush’s approach was endorsed by Russell Ybarra, president of Gringo’s Mexican Kitchen restaurants, which operates five eateries in Houston and San Antonio. Ybarra said he made a 401(k) retirement savings program available to his 650 employees, but found that few of them were interested.

“We have very low participation, and for good reason,” Ybarra said. “Many of those that work for us are what you would consider low-wage earners.”

Bush said his plan would overcome that obstacle by allowing workers to open investment accounts funded by the Social Security tax already being deducted from their wages.

“The best thing is to let them take their payroll taxes they’re paying into the system and have a plan that allows their money to grow just like a 401(k) can,” Bush said. “That’s the best thing to do for low-income workers.”

Under the current system, workers contribute 6.2% of their pay to Social Security, and their employer kicks in an additional 6.2%. Bush would allow them to divert up to 4 percentage points of that tax into individual accounts containing stock and bond mutual funds. In return, their traditional Social Security benefits would be reduced.

Hector V. Barreto, administrator of the U.S. Small Business Administration, said Social Security was a vital issue for Latinos because half of Latino retirees depended on the government system for essentially all of their income.

Several Latinos at the conference said they liked Bush’s emphasis on expanding ownership by allowing workers to accumulate retirement nest eggs.

“What I liked most is that the money you put in goes to your family,” said Justo Frias, who works in Los Angeles for the Gigante supermarket chain. “You get to leave something you’ve earned.”

Responding to concerns expressed by conference participants about the ability of low-wage workers to manage investment portfolios, Bush said he had instructed the Treasury Department and other federal agencies to work with Latino groups to improve financial literacy in America.