Although the so-called “Texas Alternate Plan” to retirement and disability insurance coverage provided through Social Security has been in effect in the state of Texas since 1981 and 1982, the recent political debates between Republican Presidential hopefuls Mitt Romney and Rick Perry have brought it to the forefront of the debates’ hot button topic – Social Security reform.
Since the early 1980s, three Texas counties’ employees have been contributing to a non-traditional retirement plan that is entirely separate from and independent from government benefits through the Social Security Administration. Thirty years later, they are reaping better retirement benefits than other retirees who are under Social Security.
The plan, which is not based on set contributions and set payouts, is managed by a private financial institution. Contribution percentages for both the employees and counties are the same as for Social Security benefits, but unlike Social Security, once the three county governments under the Alternate Plan have contributed their share, their obligation has ended. Many other old-style retirement plans, on the other hand, result in companies being obligated to pay certain dollar amounts to employees on a long term basis, a financial commitment which often has no funding to back it.
In the case of the Texas program, however, the financial adviser in care of the pooled retirement funds invests in various businesses and organizations. However, this type of investment is not at the mercy of the stock market or the next economic crisis, as some might fear. According the plan, interest rates on retirees’ funds start at a base rate of return, below which they will never dip. If the investments do well, however, interest rates increase to reflect their success.
Not only is the plan designed to provide retirement funds, it has a provision for the other benefits currently offered by Social Security, only better. Death benefits per person according to the plan, in which enrollees contribute to term life insurance, would be more than 850 times the death benefit allotted to people under Social Security. Disability is provided for as well, with no waiting periods. Also unlike Social Security, benefits are not lost when a recipient dies. Since the accounts actually belong to the beneficiary, they are transferred to family members as part of the person’s estate.
Along with the presidential candidate hopefuls, people across the U.S. are speculating if this “Alternate Plan” could effectively replace the retirement plans of 6 million state and county workers, and furthermore, the various Social Security programs.
As it stands, the Alternate Plan could technically be adopted at any time by the state and county government workers across the nation. However, since 1983 Congress barred all other employees from opting out of Social Security.
While Rick Perry and his supporters contend that having state and local government employees adopt such a program would take a tremendous burden off their already over-extended finances and provide a much-needed economic boost which could have a ripple effect nation-wide, the only way for this type of plan to be eligible to other workers would be for Congress to revoke its previous legislation. In the opinion of Rick Perry and many others, it would seem to be in the interest of everyone to consider all possible alternatives to the rapidly sinking Social Security system as it stands.
There are, however, a number of other logistical considerations that must first be addressed. Firstly, how would the already financially stressed Social Security program handle the “opting-out” of so many contributing members, and would be the real impact to the overall program and its beneficiaries be hugely detrimental? In addition, there is much doubt that the Texas Alternative Plan would scale readily to address the needs of the nation based on its performance on the small-scale, three-county operations we have seen so far.
As it stands, Social Security reform continues to be a hot button issue. We only hope that as the debate continues to rage, politicians remember the many truly needful people who rely on Social Security and its programs for their day-to-day survival and avoid making rash decisions on the basis of pure ideology.