Bush Campaigns for Private Benefits Plan in Texas

Times Staff Writers

President Bush on Tuesday took his Social Security restructuring campaign to a county where public employees began opening personal retirement accounts two decades ago, and he said the rest of the country could learn from their experience.

“This is an important concept that we’re talking about that ought to apply to every single American, not just those who are fortunate enough to work in Galveston County,” Bush said at a Social Security round-table in this Gulf Coast city.

Yet the figures cited by the president clashed with the findings of several studies of Galveston County’s retirement plan, including a new Democratic congressional analysis suggesting that most county workers would have been better off with traditional Social Security.

“This study shows that privatizing Social Security is a loser, period,” said Sen. Barbara Boxer (D-Calif.), who released the report. “This isn’t scare tactics. This isn’t hyperbole.... This is the fact.”


The dueling statistics and conflicting interpretations underscore the challenges Bush still faces as he nears the end of a 60-day road tour to persuade Americans that Social Security’s finances should be shored up and that younger workers should be allowed to put part of their payroll taxes in personal investment accounts.

Keith Brainard, research director of the National Assn. of State Retirement Administrators, said the back-and-forth illustrated the difficulty of generalizing about the benefits of private investment accounts.

Although the Galveston plan appears to provide a better overall return than Social Security, Brainard said, it concentrates its advantages on those at the upper end of the wage scale. By contrast, the progressivism of the federal system means that lower-income earners get a better deal in that program.

“It’s a mixed bag,” Brainard said. “On a global basis, Social Security has a return of 1.8% to 2%, but that return is close to zero for higher-income earners, and much higher for lower-income earners.”

Social Security, he said, “was designed as a social insurance program, not a wealth-accumulation program.”

Although polls show that more Americans perceive the system to be in trouble, they seem increasingly wary about private investment accounts despite the president’s best efforts to sell them. And as the White House offers new facts, figures and examples to support its claims, opponents counter with their own anecdotes and analyses.

Bush’s appearance in Texas, the 23rd state he has visited since launching his Social Security restructuring campaign, came as the Senate Finance Committee began hearings to develop legislation to fundamentally restructure the program.

“I’m traveling the country making it clear to people that there are better options available than the current Social Security system, a better deal for younger workers,” Bush said.


A case in point, he said, was Galveston County, which in 1981 began offering public employees the option of creating their own retirement accounts in lieu of Social Security. Participation in the program later became mandatory.

Under the program, workers contribute 6.13% of their salary to set up an account and the county adds 7.8%, providing a total contribution slightly higher than the 12.4% required under Social Security.

In contrast with the president’s personal account proposal, which would give workers an option of several stock and bond mutual funds, Galveston County’s retirement funds are pooled and invested in annuities that generate a guaranteed rate of return

Despite the differences, Bush praised the program for allowing individual workers to own a retirement account that they control and could pass on to heirs, while providing benefits better than those received by some workers under Social Security.


“What’s important here is the philosophy behind what Galveston County is doing, the idea of saying ... you can own your own assets and watch it grow,” he said. “Also, you get a better rate of return.”

Bush said Galveston County workers now receive a guaranteed return of 3.75% on the funds they contribute to their private retirement accounts, compared to an average return of 1.8% to 2% on Social Security contributions.

He said a Galveston County worker earning $25,000 a year who retired after 37 years would receive a monthly benefit of $1,250, compared with $669 from Social Security.

A higher-wage worker earning $75,000 would do better, he said, receiving $3,600 a month from private accounts instead of what he said would be $1,300 a month from Social Security.


The congressional study, which was prepared by Boxer’s staff with help from the nonpartisan Congressional Research Service, cited different comparisons and reached different conclusions.

It calculated that a hypothetical married worker who retired last year after earning a median annual income of $34,442 would receive a monthly payment of $1,568 under Galveston’s plan, compared with an initial benefit of $1,818 under Social Security.

A high-wage worker earning $87,900 a year would fare better, receiving a monthly benefit of $3,012 from his or her private account instead of a Social Security benefit of $2,841, the study found.

But even that initial advantage would disappear after several years because the payment provided by the Galveston plan would be fixed, while Social Security benefits would be adjusted upward to keep pace with inflation.


“The bottom line is that Americans are clearly better off with Social Security’s guaranteed, inflation-protected retirement benefit,” Boxer said.

Boxer’s study was based on a number of assumptions, which could be challenged by advocates of personal accounts, about years of participation and rates of return on past contributions and future annuity payments.

But the general conclusion that low-wage workers would fare worse than higher-paid employees is consistent with the findings of previous studies of the Galveston plan by the Government Accountability Office and the Social Security Administration.

During the round-table, Bush was joined by five participants in the Galveston plan, including a county judge, Jim Yarbrough, and a county retiree, Kathryn Novelli, who said she had benefited financially from the Galveston retirement plan.


Bush made no mention of possible solutions for Social Security’s long-term funding shortfall. Many experts said it would take some combination of benefit cuts and possible tax increases to close the finance gap.

He said he appreciated the work of the Senate Finance Committee, which opened hearings Tuesday on the issue. “It’s time for Congress to set aside political differences,” he said. “I’m looking forward to working with members of both political parties.”

Bush has acknowledged that individual accounts, by themselves, would not solve Social Security’s financial problem. He has repeatedly urged Democrats, as well as Republicans, to offer restructuring proposals.

Democrats have rejected Bush’s pleas, saying that they would engage the White House in a discussion only after Bush had renounced personal savings accounts.


White House spokesman Scott McClellan cited a recent Gallup Poll suggesting that more than 60% of the public believed that Congress was “moving too slowly” on Social Security. He said the president’s 60-day campaign had accomplished its goal of defining the problem.

“The president will be focusing more on solutions as we move forward,” he said.

Chen reported from Galveston and Vieth from Washington.