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Sorting Out the Social Security Debate

(This article was first published in the March/April 2005 issue of The American Postal Worker magazine)

With so much at stake in postal reform debate, USPS employees may not be paying a lot of attention to the Social Security reform discussions taking place on Capitol Hill. That would be a mistake, because changes to the current system will likely affect us all.

APWU National Executive Board Resolution on Social Security

The APWU supports changes to the Social Security system that would strengthen the retirement safety net for American citizens. We oppose any privatization scheme that would replace guaranteed benefits with uncertain private accounts, reduce workers’ benefits, or burden our children with trillions of dollars in debt. We believe our seniors, the disabled, and the young are entitled to a Social Security system that is unaffected by the profit motives of Wall Street and the investment cycles of the securities market.

This is especially true for postal workers who are enrolled in the Federal Employees Retirement System (FERS). Their benefits are a combination of Social Security and employer-matched contributions to the federal Thrift Savings Plan (TSP). Any reduction in Social Security benefits could have a devastating impact on their annuity.

Much of the debate over Social Security focuses on whether there really is a “crisis,” whether the federal trust fund is near collapse, whether drastic measures are needed to protect current and future retirees, and just what changes are needed.

Social Security is a pay-as-you- go program created by President Franklin D. Roosevelt more than 70 years ago. Initially, workers paid 2 percent of their income into the fund, which was used to pay for retiree benefits. The problem is that the number of workers making contributions is decreasing, while the number of retirees is on the rise.

In 1950 there were 16 workers to support each beneficiary. Today there are only 3.3 workers for each beneficiary. To compensate for the shrinking ratio, the Social Security payroll tax has increased from 2 percent to more than 12 percent, with employers paying half the cost.

Both sides agree that there is enough money in the fund to pay benefits for current retirees and those near retirement, but by 2018 money flowing into the Social Security fund will not be sufficient to pay its obligations to beneficiaries. While some say the fund will remain solvent until 2042, the real question is, what do we do now?

President Bush has proposed partially privatizing Social Security by allowing younger workers to invest a portion of their Social Security payroll contribution (about $1,000 per year) in “personal savings accounts” to try to get an investment under the government program.

But there are some serious problems with the president’s plan: Workers who opt for placing a portion of their Social Security contribution into a private account will be reducing their future Social Security benefits because they will be putting less money into the fund. Proponents of partial privatization acknowledge that there will be a reduced benefit, but argue that the shortfall will be made up by greater returns on funds invested by the worker in private accounts.

Opponents caution that this is a huge gamble. Private investing can be a very risky proposition. And the reduced contributions to the Social Security fund would jeopardize the benefits of all retirees, including those who do not put their money into private accounts.

According to Business Week, even if individual workers can achieve a greater return on their private investments, the reduced contributions to the Social Security fund will cause a funding gap that would take 70- 90 years to fill. This funding gap would force massive reductions in the benefits received by future retirees, even with increases to workers’ payroll tax.

Opponents believe the alternative is not to go down that privatization road. Leave Social Security as a fully protected government program, they say. While they acknowledge that the program’s solvency may depend on increased payroll taxes and some benefit changes, they believe such modifications will be far less painful than those proposed by President Bush.

Another issue that must be addressed is getting an accurate accounting of the billions of dollars that have been borrowed from the Social Security Trust Fund to help finance deficit spending. Any plan to keep Social Security solvent in the decades ahead must ensure that these funds are repaid – not given away in tax cuts for the wealthy hidden in budgetary manipulations.

In any event, the Social Security debate is one that all workers, regardless of age, need to watch closely.

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