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Watch Out for Social Security Reform

As one who has the responsibility of serving as the union’s chief trustee on our labor-management joint pension funds, I keep close tabs on pension issues in Canada and the United States. Some of the most ominous rumblings are coming from the United States among those who are proposing to tamper with a program that provides a fundamental base for our U.S. members — Social Security.

This issue is far too complex to be addressed in one column. Proposals to ensure the long term health of Social Security are many and varied and are now receiving serious scrutiny by the IBEW and all of organized labor. President Barry and I will have much to say on this subject in upcoming months. The debate is very important for Canadian workers as well, since the tide of support for privatization knows no boundaries.

There is, however, one proposal out there that should be seen now for the sham it is -- the contention that Social Security should be "privatized." Proponents of this view argue that the system should be fundamentally restructured so that the trust fund is no longer invested exclusively in federal government securities, but that taxes and employer contributions, in whole or in part, be set aside in individual accounts and invested in the stock market or wherever the individual wants.

The fantastic level of stock market returns in recent years has provided impetus for this argument. So too, the steep decline in stock prices in August showed the downside of such a system, but has not seemed to cool the ardor of proponents.

The real evidence of the tremendous risk associated with private accounts, however, was provided by none other than a newspaper whose editorial page routinely sounds the clarion call for privatization — the Wall Street Journal.

In its August 10 edition, the Wall Street Journal carried a front page news article -- not an opinion piece -- on the experience in Great Britain with privatization of their version of Social Security. The results were not what the pro-privatization forces had in mind — to put it mildly. They claimed that Britain’s social security system was in long term danger and that workers could earn better returns with individual accounts invested in equities and other instruments of the private market. Private companies moved in quickly to market these so-called private pension to workers of all ages and income brackets and induced some two million of them to take their money out of the government and employer sponsored programs.

Today, many of those working people are left holding the bag, and the bag is almost empty. The private accounts marketed by insurance companies and other financial institutions came with significant commissions and management fees. Since these accounts were "private," employers did not pay into them, depriving workers of a significant source of retirement security. The result is that British insurance companies are being required to pay some $18 billion in compensation to workers in such as nurses, miners, teachers and others. Many lost thousands of dollars and were forced to pay even more to opt back into their government and/.or employer-provided plans. That represents money and years of service credit that can never be fully recovered.

I obviously have no ideological problem with private investment. Indeed, it is part of my job to share the management of the private investments of the National Electrical Benefit Fund and our other plans. But these consist of pooled funds, including employer contributions, where the investments generate revenue that is more than sufficient enough to cover guaranteed levels of benefits and periodic increases. They do not put individual members at risk.

We believe that the well being of retirees is the responsibility of the government, the employer and the individual. Placing all of the burden on only one of these parties throws the entire system out of balance.

In the United States and Canada, we have fought long and hard to establish a system that allows our members retire with dignity and security. These are not hollow words, but genuine and vital supports for the lives of our members who are retired or those who hope to be. Let’s participate in the Social Security debate, but let’s not be fooled by the fast talking hawkers of privatization.