<i> The Program Is Good, but It Should Be Redesigned to Eliminate Flaws </i>
There is no question that Social Security has done everything its designers wanted it to do, and it also has had many highly beneficial side effects.
But younger workers see the Social Security system as increasingly burdensome and unfair, and they are growing rebellious against it as they consider their own prospects for retirement.
Indeed, many question whether the system will still be there for them when they retire.
The supporters of Social Security contend that the program, with its flaws, is a good one, but many critics insist that the system is unworkable and should be scrapped.
So there must be a compromise: If the concerns of younger Americans are to be met, the system must be redesigned to meet the needs of the future.
The biggest stumbling block to the Social Security system is the fact that there is not enough money on hand to pay benefits for the potential life expectancies of all recipients. It’s true--as defenders of the system argue--that funds collected from active workers exceed the monies being paid out in benefits to retired persons.
But this excess should be considered a reserve for all future benefits, not a “surplus,” and that reserve may be enough to cover months of payments, but the average recipient will need to collect benefits for years.
Congress has responded to the fiscal problems of Social Security by mandating higher and higher contributions to the system by active workers.
Older workers tend to accept the higher levies on their earnings; it’s relatively easy to rationalize those higher deductions when you’re not far from retirement. But workers in their 20s and 30s are growing increasingly disenchanted and resentful. If these sentiments continue to grow among the young--and they almost certainly will--the result could be a form of age-bracket warfare, with younger workers reacting at the polls against their elders.
The consequences of such a backlash could be devastating to the present Social Security system and its beneficiaries.
What could be done to prevent such a potential upheaval?
Just as Social Security provided the impetus for creation of today’s private pension system, the private system could now serve as a model for reforming Social Security.
In recent years, more and more companies have been moving away from traditional pension systems--those that provide specified monthly pension benefits at retirement based on compensation and length of service (often including service prior to the start of the plan).
Instead, they are moving to pension plans that provide for a separate, individual account for each worker--linking benefits directly in some manner to contributions made by the employer on the worker’s behalf. Employers contribute a specified amount for each employee every year, so that the employee knows at any given time exactly how much value he or she has accrued in a retirement account.
When a worker leaves--whether to retire or move to another job--the employer has set aside all the funds needed to pay the benefits earned.
With the new type of retirement plan, a person has the satisfaction of knowing that the money contributed is essentially for his or her own future use--not to be used primarily for others, as is the procedure under Social Security’s current transfer system.
Why not adapt this concept for Social Security? It would be entirely feasible to establish accounts for individual workers and give them some flexibility in the percentage of their paycheck they contribute to their account.
There should, of course, be minimum contribution levels for both the employee and employer. But workers might be allowed to put aside more than the minimum if they desire.
Such a system might also emulate the concept of the graduated mortgage, requiring relatively small contributions when a worker is young and rising in later years when, presumably, the worker is earning more.
The money contributed by workers and employers would be held in trust for individual accounts, and investment of the funds would be tightly controlled. At the least, there should be a requirement that, at the recipient’s retirement, the account would be converted to a lifetime pension for the individual and surviving spouse.
Obviously, Social Security could not be changed to establish individual accounts for everybody in one fell swoop.
Tests would have to be made to determine the break point--the age level at which benefits under the individual account system would be as great as they would be under the present system.
Everyone older than the break-point--it would probably be somewhere between ages 40 and 50--would continue to participate in the system as it now exists. Those younger than the break-point would have individual Social Security accounts established for them.
No Longer Contributing
Conversion to an individual-type system would mean there wouldn’t be enough money to provide benefits to workers above the break point, because younger workers would no longer be contributing to the pool of funds used to pay retirees.
The only logical way of solving this problem would be one that has always been anathema to critics of the system--dipping into the general revenues of the Treasury.
As distasteful as this would be, it would be preferable to the prospect of a younger workers’ rebellion that would cause ultimately retirees to suffer the loss of substantial benefits.
Social Security has been of remarkable service to retired and disabled people and the nation over the past 50 years. The best way to ensure its continued success is through substantial changes--and compromise.
