May 12, 2014 Updated: May 12, 2014 at 12:07 pm
El Paso County Commissioner Amy Lathen is leading a movement to give local governments the chance to bypass Social Security and move retirement money to more lucrative options.
The commissioner wants to see a federal law change underway by the end of 2014 that would allow El Paso County or other government entities to opt out and invest retirement money in "market-driven alternatives" such as mutual funds. The initiative has been dubbed SMART Options, with the first word in the moniker standing for "Stable, Market-Driven, Alternative, Retirement Transition."
"All we're trying to do is have an option," Lathen said, noting that she has been in communication with members of the U.S. House of Representatives Ways and Means Committee. She declined to share the names of those legislators, saying that once the members of Congress officially commit to sponsoring a bill, they will be made public.
Lathen and two University of Colorado at Colorado Springs professors shared research findings at a recent Board of County Commissioners meeting, concluding that shifting funds to private-sector investments could provide economic stimulus for people, states and the federal government as well as increase monthly income for retirees.
"I'm not sure that Social Security is going to survive in the form that it's in," said Tom Zwirlein, a professor of finance at UCCS.
Zwirlein and his colleague Fred Crowley painted a picture of the Social Security system that began with President Franklin Roosevelt's Social Security Act of 1935 and will likely run out of money to pay benefits by 2035.
Zwirlein and Crowley's research showed that in 1940 almost 160 people were contributing to Social Security for each person receiving benefits. The program began paying beneficiaries at the beginning of that year when Ida May Fuller received a check for $22.54.
In 2010, there were only 2.9 people contributing for each beneficiary and the Social Security Administration predicts the number will fall to 2 by 2060. Zwirlein said this trend and "relatively low returns" from Social Security investments will lead to its demise.
According to Zwirlein, money contributed to Social Security by public servants "just sits there." He said allowing government employees the chance to contribute to mutual funds will put the money back into the economy creating the "stimulus" that would eventually lead to increased sales tax revenues for the government.
"The world has adapted," Zwirlein said, stressing that stock market investment options have surpassed Social Security as a more profitable retirement option.
The professor said diversification of portfolios leads to bigger returns. His and Crowley's research cite Chile's transition to private pension program that is often called "one of the more successful efforts" to change from a Social Security-like system to private contribution accounts.
According to their report, multiple researchers show the "Chilean experiment" continues to be successful. Estelle James, a senior fellow for the National Center for Policy Analysis, said in 2007 that the Chilean system would provide a pension to workers equal to 60 to 85 percent of their final pay as compared to a 40 percent benefit from U.S. Social Security.
"Times have changed. Why don't we change?" Zwirlein said.
Before 1951, state and local governments were not allowed to participate in the Social Security program. According to the Social Security Act the program was formed by the Roosevelt administration "to provide for the general welfare by establishing a system of Federal old-age benefits." That mandate changed through a formal agreement and local governments were given the choice of opting in or out of the program from 1951 to 1983.
In 1983, the choice to opt out was eliminated when amendments were made to the Act.
According to the U.S. Department of Labor's Bureau of Labor Statistics about 14 percent of the 19.1 million full and part-time state and local employees were covered by Social Security in 2012. Kim Melchor, a spokeswoman for Colorado Springs, said city employees do not participate in Social Security.
Under the current rules, if any of the public entities that don't participate in Social Security decide to opt in they would have no future chance of opting out. Other advocates pushing for the opt-out choice say that payroll taxes would decrease without having to pay into Social Security. According to the Coalition to Preserve Retirement Security, money not used for the payroll taxes could go to increase salaries, pay for needed equipment and supplies, or provide even more services to the public.
Lathen's push to have the rules changed received support from fellow commissioners after Zwirlein's and Crowley's presentation. Darryl Glenn, the District 1 commissioner, and Sallie Clark of District 3 voiced their support at the meeting.
Clark said she is concerned with long-term liability created by the Social Security program that has changed little since its inception in the 1930s. She noting that "people are drawing money out and nobody is putting any in."
According to Lathen, a "minimal draft" of a bill has been written. "But we're not bill writers," she said.
Lathen is aiming for a congressional vote in early 2015, but called that goal "lofty." She said details must be ironed out and decisions made about specific wording in the legislation to garner as much support as possible.
"I'm going for gold here," Lathen said.