alternative

The Galveston Plan: A Feasible Alternative to Social Security?

By Melissa Charbonneau
White House Correspondent

CBN.com – GALVESTON, Texas - Two decades before President Bush started pushing personal accounts for younger workers, employees in three Texas counties pulled out of Social Security to invest their payroll taxes in private accounts.

Retired County Judge Ray Holbrook, an early advocate of the Galveston County alternate plan says county workers wanted a reliable replacement. He said, "There was a lot of publicity in '1979-'80 about how much trouble Social Security was in. They were looking for something that was a little better benefits than Social Security was paying."

When Galveston County workers voted 3-1 to privatize their retirement accounts, they chose not to invest in the stock market, but instead chose a more conservative approach.

Rick Gornto with First Financial Benefits administers the plan. Gornto stated, "They were fearful of getting out of the system, supposedly stable, that they were used to."

It is designed to mirror Social Security's retirement, disability and survivor benefits.

Gornto said, "We set up this program up on a banking model, a guaranteed contract, basically guaranteed annuities, which give a good return, a stable return, as opposed to investing in the market, which subject the participants to the vagaries of the market."

In contrast, the President's proposal, modeled on the thrift savings plan of Congress and other federal workers, allows investment in stocks and bonds. Galveston's returns are not as high as the market offers, but Carolyn Barnett has no regrets.

"I'm getting more money than my mother-in-law got in her Social Security,” said Barnett. ”I had no idea I'd be getting a check -- as much as I'm getting. I'm really surprised about it."

As a deputy court clerk, Barnett contributed 24 years into the alternate plan. She just retired at age 58, while her friends on Social Security are working until 62 and beyond.

Barnett said, "This one little lady was up in her 70's, well in her 70's, close to 80, before she could retire, because she didn't have enough money to help her, in order to live."

Former District Court Judge Rick Carmona says that personal accounts worked for him, but he is not convinced they are enough to replace the benefits that Social Security gives children when a working parent dies. But Carmona said, "I've gotten what I put into it."

He added, "My mother was widowed at a very young age, had minor children, and she hadn't worked while she was married to my dad. And if it hadn't been for that Social Security, she would not have been able to survive, and I would not have finished law school and completed my education."

Proponents counter that the alternate plan offers generous life insurance and death benefits that can go a long way.

Gornto explained, "They get up to $200,000 of death benefits that go directly to their estate, tax-free, plus the value of their retirement account that has accumulated till the day of death. So their survivors end up with a significant proportion of their estate, much more than they'd have gotten under Social Security."

Judge Ray Holbrook recalls the case of a county worker. He said, "He was young, only 45, and he had a heart attack at the airport and passed away. His wife got an insurance policy of $150,000 plus $100,000 he had paid in the plan, over 10 years. He was a county commissioner, so she ended up with $250,000. From Social Security, she would have gotten $255."

Some opposition to private accounts comes from 1999 studies by the GAO (Government Accounting Office) and Social Security Administration.

Gornto disputes the studies’ conclusions, that low-income worker do worse under private accounts than higher-income workers. He said, "Our numbers show we're going to give them more than what Social Security says. I don't care what the GAO says; I mean, I'm looking at it every month, seeing what those workers get paid!"

According to First Financials numbers, workers at all income levels fare better in private accounts.

Based on a 40-year earning period, a worker who made $17,000 a year would retire at age 65 with $683 a month on Social Security. The same person investing in the alternate plan would get $1,036 dollars a month, over $300 more.

A retiree who earned $50,000 a year would receive $1,368 a month under Social Security. But in a private account, would pull in $3,103, or $1,765 more.

Gornto remarked, "It's real simple. We have a invested a dollar and earned an average of 6.5 percent on that dollar every month over the last 24 years, average. We've made more or less, depending on the interest rate. "

And, unlike Social Security, every dollar that goes into private accounts belongs to the worker's estate, cash assets that can be passed on to heirs.

Barnett said, "I've worked hard all these years and want my kids to have something from me, my husband, and children, too. Whatever's left over, I want them to have it."

Judge Holbrook stated, "You get a statement every three months on what's in your account, and it is yours."

For decades, Social Security has faithfully paid out to America's seniors. But with Social Security's future in question, young workers wondering if the system can fulfill its promise to them are looking at other options.

Gornto said, "The problem with Social Security is whether they'll have enough funds in there to meet those obligations in the future. Our programs, on the other hand, are whatever you save, and what grows, is what you're going to get."

And as debate heats up in Washington over the pros and cons of private accounts, the real life stories of the Galveston experiment may well provide a model of reform for the nation.

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