Congress, in a rare moment of pragmatic lucidity, passed the 1974 Employee Retirement Income Security Act (ERISA). ERISA also established the Pension Benefit Guarantee Corporation that, among other things, defines the minimum annual actuarial returns private-sector defined benefit retirement plans are required to generate.
Most working folks’ monthly paychecks are net of roughly equal deductions, respectively, for Social Security and their private-sector retirement plans. Upon retirement, however, that employee’s monthly payouts received from Social Security are typically well less than 10 percent of the monthly payouts received from the aggregate payouts of their private-sector retirement plans.
This is because the Social Security trust fund is invested at a risk-free rate; hence its fund cannot possibly grow in real terms. Over the decades of this massive government mismanagement, Social Security’s dramatically underfunded liability relentlessly continues its unbounded growth.
Congress needs to have another long overdue moment of pragmatic lucidity: this time to remedy to Social Security’s dual problems of perfunctory retirement benefit payouts and periodic insolvency. This time, the solution is vastly simpler than, for example, crafting the 1974 ERISA; it’s a one sentence Federal Statute: The Social Security Trustee shall comply with ERISA.
If such a statute were enacted, the Social Security trustees would be required to comply with the same requirements of ERISA imposed on all private-sector defined benefit plan administrators. An even greater societal benefit derives from Social Security’s aggregate annual contributions in the same types of assets in which private-sector defined benefit plan funds are invested, effectively doubling the capital in private-sector equities and bonds.
Presuming Wall Street’s pragmatic side prevails, this doubling of available capital would, in turn, reduce the weighted cost of capital and nearly double the sustained rate of economic expansion generated by private-sector risk capital investments. Among other effects: a near doubling of the quantity of living wage jobs created annually; a near-doubling of the U.S. government’s tax revenues generated from corporate earnings and expanded payroll taxes. And all without increasing federal tax rates.
Congress must pass legislation that would requires Social Security’s trustees to comply with the ERISA Act in the next session!
John Fluke Jr.