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UE/Labor Party On-Line Social Security Workshop

Plan (#2)

The Clinton Plan —

Investing in the Stock Market

"Investing a portion of the transferred surpluses in the private sector to achieve higher returns for Social Security — just as any state or local government, or private pension does — after working with Congress to devise a mechanism to ensure that the investments are made independently and without political interference. We will support using a broad-based neutral approach managed by the private sector with minimum administrative costs."

1. Studies show that over the long term, the Federal Treasury Bonds which is where social security surpluses are invested, pay about the same as the stock market does. For an accurate measure of what the stock market earns you have to deduct the fees that stock brokerage houses charge, anywhere from 5-10%. You also have to take into account that the market goes up and down. In the last 93 years there have been 55 times the market dropped more than 10%.

2. State, local and private pensions do invest their money in the stock market, but only under strict guidelines. Almost all those pension plans that Clinton mentions are defined benefit plans. If the pension plan loses money in the stock market, the employer must make up the losses, because the employees’ benefits are guaranteed. Under Clinton’s plan, if the stock market crashes and the social Security fund loses money, NO ONE has to make up the loss. Clinton’s plan calls for investing 20% of the surplus in the stock market. This amounts to about 500 billion dollars over the next 15 years. Losing any portion of this money would seriously hurt Social Security.

3. Some people, even in the labor movement, have supported investing our money in the stock market. Their claim was that by investing in companies, "we" could have some control over them and make them nicer to deal with. Their mistake is that they don’t understand that Clinton is ruling this out. He is calling for a "neutral approach managed by the private sector." This means even though the government would buy stocks with our money, the government would have no power as a stockholder over any company. Clinton wants to give away our money and get nothing in return.

The Administrative Costs of Social Security

4. The administrative costs of Social Security amount to less than 1% of the benefits paid out. This makes it the most efficient operation of its kind in the world. Most insurance companies spend 40% of the money they collect on all their expenses. In Chile, where the social security system is privatized, the administrative costs are 20%.



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