NCPA - National Center for Policy Analysis

Could Personally Owned Retirement Programs Replace Social Security?

May 8, 2015

Social Security currently faces $13.4 trillion in unfunded liabilities; why not try a plan that would save money and improve benefits for the disabled? 

Indeed, the problem is so bad a political scuffle has emerged over robbing from Social Security's Old Age Trust Fund in order to pay disability benefits.

The policy question is why disability insurance is part of the Social Security system in the first place.  The private sector could easily handle this function, removing the government intermediary.

In 1981-2, three Texas counties (Galveston, Matagorda and Brazoria) opted out of Social Security and created an alternative, personally owned retirement program that mirrored all three of Social Security's primary functions—only the benefits are better.  It's known as the Alternate Plan (AP).

  • The Alternate Plan's disability benefit is based on the worker's salary.  Today, disabled workers receive between 66 percent and 80 percent of their monthly salary, up to a maximum of $8,000 a month, according to the Plan's financial manager.  Under SSDI, the large majority receive less than $1,700 a month, and only a handful receive more than $2,800.
  • The Alternate Plan also replaces Social Security's survivorship provision with a private sector life insurance policy.  If a worker dies, the family or estate is paid the proceeds, equal to four times the employee's salary up to $215,000—a bit better than Social Security's $255 death benefit.

In short, disabled people are much better off under the Alternate Plan.  But so is the country because private sector companies would be monitoring those receiving benefits to ensure (1) they actually are disabled and (2) whether they have improved and can return to work—both sources of significant potential fraud.

Source: Merrill Matthews, "Privatizing Social Security's Disability Program Would Help The Disabled," Forbes, April 29, 2015.


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