Don’t mask Social Security’s problems. Solve them.

www.americanthinker.com

Every few years, Washington rediscovers that Social Security is headed toward a financial crisis. And every few years, the same solutions are proposed.

Raise the payroll tax. Lift the payroll tax wage base, currently $184,500. Increase the retirement age. Reduce future benefits. Each proposal may improve cash flow. None addresses the real problem.

As a CPA specializing in financial restructuring, former Pennsylvania legislator, and former vice chairman of the Public School Employees’ Retirement System, I have spent much of my professional life helping organizations confront financial crises. One lesson has remained remarkably consistent: Organizations succeed only after they identify the real problem. Everything else merely delays the inevitable.

That is where the current Social Security debate has gone off course.

Congress is focused almost exclusively on increasing revenue while largely ignoring the investment policy governing nearly three trillion dollars in Social Security trust fund assets. Under current law, those assets are invested exclusively in special-issue U.S. Treasury securities.

Those securities are among the safest investments in the world. They are not designed to maximize long-term returns.

Imagine if Congress required every state pension fund, every corporate pension plan, every university endowment, and every charitable foundation in America to invest exclusively in U.S. Treasury securities. Trustees would object immediately. Beneficiaries would rightly ask why their retirement savings were prohibited from earning the long-term returns available through prudent diversification.

Yet that is precisely the investment policy Congress has imposed on Social Security for generations.

If the trustees of a private pension deliberately limited every investment to low-yield government securities while ignoring decades of evidence supporting prudent diversification, they would almost certainly be accused of failing their fiduciary responsibility. Yet Congress requires exactly that policy for Social Security.

The result should surprise no one: Lower investment returns eventually require higher taxes, lower benefits, or both.

Washington’s response is to ask American workers to contribute more before asking whether the investment policy itself deserves examination. That is backward.

Imagine two families saving for retirement. One invests in a diversified portfolio over forty years. The other is legally prohibited from doing so and is limited primarily to lower-yield government obligations. No financial planner would expect both families to arrive at retirement with equal assets.

Why should Social Security be different?

The 2024 Social Security Trustees project that the Old-Age and Survivors Insurance Trust Fund will be depleted in 2033 if no changes are made. So Congress is debating how to collect more money.

It should first ask whether the money already collected has been managed in the best interests of the workers who earned it.

For decades, Americans have faithfully paid every paycheck deduction required of them. They fulfilled their obligation. It is now time for Congress to fulfill its own — not by asking workers to pay more before examining why their retirement dollars were never allowed to earn what every other professionally managed pension fund seeks to earn.

Don’t mask the problem. Solve it.

Frank Ryan is a CPA, retired U.S. Marine Corps colonel, former member of the Pennsylvania House of Representatives, and former chairman of the Pennsylvania Public School Employees’ Retirement System (PSERS).

Image: pasja1000 via Pixabay, Pixabay License.