As time goes on, it is very likely we will hear more news about the challenges of funding the Social Security system.  It is important that our national leaders find and implement real solutions to fix the solvency problems surrounding Social Security, since many Americans look to it for at least part of their retirement security.  However, those “fixes” should not be done at the cost of undermining our states’ many public pension funds.

In particular, some of the proposals to stabilize Social Security would require school, state and local government employees, who are hired after the year 2001, to join the Social Security system.  This requirement would cost state and local government millions of dollars unless pension benefits were drastically reduced. That’s because the average employee cost rate is 9 percent and the average employer cost rate is 12 percent for Social Security, whereas non-Social Security retirement plans have an average cost rate of 8 percent for both employees and employers.  Studies show that Louisiana would have to pay an additional $50-$90 million per year to cover the costs of Social Security for state workers and public school and university teachers.  This figure could grow to as much as $500-$700 million by year 10 of the mandatory coverage plan.

In addition to these added costs, mandatory Social Security coverage would leave existing public retirement systems with fewer people paying into them, thereby creating instability for these systems and the threat of less benefits for their members. Fourteen states, including Louisiana, have opted to cover substantial numbers of their public employees under independent plans rather than Social

Security, and firefighters and police officers in nearly every state are covered by independent plans.  These public employees are not eligible for Social Security benefits unless they have paid into Social Security elsewhere.  Rather, they are dependent upon the integrity of the systems they have vested in for their pensions.

To mandate what would amount to “forced abandonment” of these systems for a quick infusion of funds into the Social Security system would be unconscionable. The proposals mandating Social Security coverage for public employees calculate that such action would only reduce Social Security’s financial shortfall by about 10 percent.  To better put that in prospective, it means that  Social Security’s solvency would be extended by only two years!

The mandatory coverage proposal is not a solution, but rather a modern-day example of “robbing Paul to pay Peter.”  There are no winners in this scenario.  Reducing the strength of the states’ many responsible retirement systems to subsidize a troubled federal system will hurt countless working families.  It is short-sighted, fiscally irresponsible and treacherously unfair to those public employees who have independently planned and worked so hard to secure their retirement future. 

President George W. Bush has voiced opposition to mandatory coverage, while numerous governors from across the country, including Gov. Mike Foster, have admonished this proposal.  I join these voices of opposition, and ask voters across Louisiana to speak out against any action that would weaken the states’ public retirement systems.

If you have additional thoughts on this issue, or would like to express any comments, suggestions or criticisms, please contact me at the Office of the State Treasury at 225-342-0010, or via fax at 225-342-0046.