NCPA - National Center for Policy Analysis

San Diego's Employees Have Private Pensions

April 12, 1999

In 1981, two years before Congress changed the Social Security law to prevent state and local government employees from setting up their own pension systems, San Diego opted out of Social Security and set up its own fund.

  • It's called the Supplemental Pension Savings Plan -- a mandatory defined-contribution plan into which a worker contributes at least 3 percent but no more than 7.5 percent of his salary into his own account.
  • The city matches employees' contributions dollar for dollar.
  • Initially, the city's treasurer invested the funds in low- risk securities averaging 5 percent to 8 percent return a year -- but after restructuring in 1996, employees were allowed to chose from among four mutual funds and were granted greater control over their money.
  • So far the four funds have posted an average annual rate of return of more than 14 percent.

Employees who would only have been able to receive about $1,300 in monthly payments from Social Security at retirement are looking forward to a comparative bonanza. Many accounts will be worth well over one-half million dollars, with monthly payouts in excess of $4,000.

State and local retirement plans fund future benefit payments from employee savings -- a fundamentally different approach to the pay-as-you-go Social Security system, which relies on current payroll taxes to fund current payouts.

Source: Carrie Lips (Cato Institute), "All Americans Deserve a Private Program Like This," Washington Post, April 11, 1999.

 

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