Dark Bilious Vapors

James Klurfeld (NY Newsday) had this excellent point to make about the Bush Lolla-Phul-Luser Soc. Sec. Revamp proposals in this article : Bush's hard sell on Social Security hard to figure

”One of the most interesting aspects of my job is the ongoing interaction with you, the readers. I'm constantly aware - and reminded - that there are many readers who know a great deal about a subject I'm writing about because they've either spent their life in a particular business or have made a study of a particular subject.

That was certainly the case this past week when I received a letter from David A. Levene of Melville outlining his thoughts about President George W. Bush's crusade to privatize the Social Security system. Taking the time to read Levene's letter on the "fuzzy math" of the Bush proposal gave me insight into why the administration is having so much trouble convincing Congress and the people that the president's concept makes sense. The Senate finance committee opened hearings this week utterly divided on what to do, not even certain all Republicans would support the president.

Levene, it turns out, was a senior vice president and chief actuary for Metropolitan Life Insurance Co. He spent 41 years with that company, including time in the retirement savings division, before retiring in 2003 at age 62. That is to say he knows a little bit about this topic, but he takes pains to note that his point is his personal opinion.

And his point is that if the Bush administration is willing to borrow billions of dollars to finance the transition costs to a system of personal accounts, it would be more efficient to take those billions and put them directly into the current Social Security system. Why? Because the return on investment would be better than what you could receive in private accounts.

Levene says he is not necessarily in favor of such borrowing, which would have profound negative implications for the economy as a whole. But he says that if you accept Bush's assumption on borrowing, you still would do better under the current system, with its lower administrative costs and greater spread of risk. The actuary in him just can't help working the numbers.

In addition, says Levene, it doesn't make sense to take what is now a "social insurance concept" - what is, in essence, a guaranteed payment - and replace it with an "investment risk" similar to IRA and 401(k) plans. The better course would be to make minor adjustments to the Social Security system, whether by raising the cap on income taxed for Social Security, by altering the retirement age or by reducing benefits for the wealthy.

"By lobbying so aggressively for personal accounts, the administration has diverted attention from finding realistic solutions to Social Security's projected financial shortfall," Levene writes.

I couldn't put it better myself. It would be a tragedy for the nation to have had this great debate on Social Security and then walk away from the real problem: The system needs to be shored up, not radically changed.

I suspect that in his clear and logical analysis, Levene has illuminated why the Bush plan is in trouble in Congress. Despite the president's using the bully pulpit of the White House, claiming a mandate in his re-election (narrow as it was) and trying to oversimplify - if not distort the facts outright - the American people are not buying personal accounts as a magic elixir.

You don't have to be a chief actuary at a major financial institution to appreciate the clear logic of what Levene is arguing: There ought to be at least one leg of a retirement plan you can count on. Some of us have individual investments and/or company 401(k)s and IRAs. But many people do not. Social Security is not a speculative investment and does not have to be one in the future if a few steps are taken now to shore it up.

"And," Levene told me by phone, "don't forget there are an awful lot of people who rely solely on Social Security for their retirement. ... It's really crazy to change a system that has worked so well."

Karen on 04.30.05 @ 04:07 PM CST