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The Philosopher

Restructuring the Social Security Administration to Achieve a Smaller Government Ver. 1.0
The Top Gun National Crises Troubleshooter
February 14, 2014

The University of California (UC) probably has the best pension plan management in the country or is among the best and should be used as a role model to restructure the Social Security Administration (SSA). Breaking apart UC to its component parts results in a “Non-Profit, Academic Institution, managing a pension plan for its members”. The present SSA uses new investor’s funds to pay unearned dividends to the matured investors. The 401K and 403B plans put the pension plans in the hands of inexperienced investors or limited options provided by employers. My Stock Broker of many years, states “Stock brokers have the highest turnover rate of any profession”. A lot of people want to become Stock Brokers, but few are successful. The 401K-403B investors have only a few choices of investment provided by their employer, or they need to find a fund manager or manage their investments themselves. The MYIRA program suggested by the president will result in a larger government, something not supported in the conservative House and not losing any funds means that either the tax payer must cover the losses or the rate of return is smaller than the rate of inflation and inflation will eat away at the funds (they will lose money). There is a slim chance they will find a successful investment manager; there is also a slim chance of investing with a dishonest investor that steals their invested funds, and they themselves have a long learning curve to go through to be successful managers of their own pension plans.

There is more than a good chance that when recession comes and their 401K is losing money they will pull their fund from the market and put the money in a bank solidifying their losses because they will not be in the market when the market recovers and they will not be able to time their transfers to take advantage of upturns in the market. Upturns in the market usually happen with fast response times, downturns usually happen with slower response times, so timing of the market transfers is very difficult if not impossible. If you think the market is going to go up it will invariable go down, if you think it will go down it will invariable go up, the probability of making the wrong decision is greater than the probability of making the right decision.

The model of UC can be multiplied several times over using “non-profit, academic organization to manage pension plans for our citizens”. With a choice of Academic organizations there will be competition between the academic organizations which should produce excellent rate of returns on investments for our citizens, especially if they can move their pension plan from one academic organization to another and the non-profit academic organization are allowed to collect a small management fee (1-3% prorated) of the funds invested for managing the pension funds, they will have even more incentive to produce excellent rate of returns on investments. Rate of returns for the various academic organizations should be made available to the public. This program results in smaller government, something that is supported in the conservative House. The funds will be out of the control of the government, so legislators trying to balance a budget will not have access to the pension funds, this should produce long-term stability.

The Budget will benefit as the nation will not have the expense of operating the SSA and the government will be only be in a subsidizing position. The transition from the present SSA system of paying the mature investors with new investor’s funds will probably have to be a negotiated transition and could be coordinated with the 401K and 403B programs.

There are several advantages to this proposal:
1) Allowing citizens to choose their pension provider, the nonprofit academic organizations would be in competition with each other for funds to manage; this will result in them striving to make good investments.
2) Several portfolios could be offered depending on the level of risk the citizens feel comfortable with and the time line when they will need the funds in retirement.
3) Authorizing the nonprofit academic organizations to charge a small management fee of around 1-3% of invested funds prorated, will also provide incentive to fund good investments and the funds they manage will grow in value creating more income from the fee charged to each account.
4) The nonprofit academic organizations will be receiving income therefore; they will be able to lower their tuition fees for their academic organization providing education to more of our future GDP producers at a lower education expense increasing income to the federal budget through taxes collected on a highly paid, highly educated work force.
5) The federal budget will be reduced by eliminating the existing Social Security Administration overhead expense and reduce the obligation of the federal budget to subsiding the retirement of those qualifying for benefits. This will be a big budget cutter.