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ON THE RECORD/Texas county reforms Social Security plan

ON THE RECORD/Texas county reforms Social Security plan

Galveston offered private accounts back in 1981.
  • Written by American City & County Administrator
  • 1st March 2005

Economists, politicians and Johnny Q. Public have been spending a lot of time lately peering into Social Security’s crystal ball and debating the merits of switching to private accounts. But for Galveston County, Texas, private retirement accounts are yesterday’s news. In 1981, with employee approval, the county opted to replace the government employees’ Social Security accounts with private ones. Employees and the county each contribute 6.13 percent of the employees’ salary to the plan, and the money is held by an insurance company. County Commissioner Ken Clark recently talked with American City & County about Galveston’s Alternate Plan and its viability for the nation.

Q: Why did the county initially decide to switch from Social Security accounts to private accounts for government employees?

A: Basically, it came down to a question of the long-term viability of Social Security and the distrust that the county had in regards to Social Security being there for the long-haul. And with the county needing to control costs, it was a good opportunity to do that.

Q: What are some of both the positive and negative responses the county has received from employees?

A: Mostly the responses we get from employees are positive. They have been very happy with the program. The General Accounting Office analyzed information in 1998 and 1999 and told us that the benefits from the private accounts have been higher across the board for all income levels than if the money would have been in a Social Security account. Over the years, we have had some employees who talked to the media and threw out numbers, saying that they would be making more with Social Security. But those statistics haven’t had any foundation.

Q: Do you worry about significant fluctuations in the market affecting the private accounts?

A: Actually, they don’t have an impact. The returns on the money are based on a fixed interest rate. If the economy is doing well, the returns are higher, but there is that minimum guaranteed rate of return. We monitor the insurance company’s financials very closely and know that it’s secure. The employees can contribute additional money through a 457(b) plan if they want and choose how to invest that. On a national level, I think that’s something that should be considered as well.

Q: Can you see the privatization of Social Security working on a national level?

A: I think that it can. It’s a good opportunity for us not to rely on the government, taking responsibility for our own retirement. And with the county, [the returns are] not dependent on whether a company is successful or not successful. [The money] is there. I also have greater [death] benefits than with Social Security if, unfortunately, I would need those. I think there needs to be a phasing in where people can decide whether they want to opt out of Social Security or not. When we started the program in 1981, employees had a choice. For anyone who was hired in the county after 1986, it was mandatory that they go on the Alternate Plan. So there were options for current employees, and I think we need to make those options available at the national level.

Q: Has there been bi-partisan support for the private accounts, or are opinions divided along party lines?

A: I think that when Galveston, Brazoria County and Matagorda County opted out of Social Security, every member of their respective courts was probably a Democrat. Whereas, today, I believe most of the members of commissions court in Brazoria County are Republican, and I believe that is the case in Matagorda County. I know there is no dissention with the plan in Galveston County.

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