Risks Seen in Perry Plan for Switch to Pensions

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Gov. Rick Perry of Texas, who has long been a vocal critic of Social Security, outlined a plan last month that he said would preserve the program “for all generations of Americans.” But one part of his plan — to let state and local government workers opt out of Social Security — could add risk to their retirements while sapping money from the system.

The proposal runs counter to the recommendations made recently by a couple of high-profile, bipartisan debt reduction commissions — which called for shoring up Social Security, in part, by enrolling the nearly seven million state and local government workers who are not in the program.

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More than a quarter of state and local government workers do not currently participate in Social Security, though some now wish that they did. Some city workers in Central Falls, R.I., were never enrolled in Social Security, which saved both them and the city from the payroll tax that funds the program. The city filed for bankruptcy this summer and reduced their pensions by as much as half, to as little as $10,000 a year. Now they have no Social Security benefits to fall back on.

Public schoolteachers in Illinois do not participate in Social Security, and their pension fund is in precarious shape. Last year the fund reported having just 48 cents for every dollar of benefits it had promised, largely because the state had failed to pay the required amount of money into it for many years.

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Mr. Perry often points to the example of Galveston County in Texas as a place that opted out of Social Security in favor of a locally run savings plan. Herman Cain, the former pizza executive, has also spoken approvingly of the Galveston plan in several Republican presidential debates.

But they have not mentioned that the Galveston program is actually more expensive than Social Security. Social Security’s contribution rate is 12.4 percent of payroll, with 6.2 percent coming from each worker and 6.2 percent coming from the employer. The Galveston plan’s total contribution rate is 13.9 percent of the payroll, with 6.1 percent coming from each worker, and 7.8 percent from the county — or, more specifically, its taxpayers.

full: http://www.nytimes.com/2011/11/06/us/many-see-risk-in-rick-perrys-plan-for-social-security.html