The U'S' Welfare State _______________________

1
The U.S. Welfare State_______________________
Three (or 4-) legged Stool of Retirement
Income Social Security, Pensions, and Assets
2
Prior to the U.S. Welfare State__________________
______
3
The Setting The Great Depression________________
_______
4
The Development of the U.S. Welfare
State________________________
President Franklin D. Roosevelt 1935
5
The Development of the U.S. Welfare
State________________________
We can never insure one hundred percent of the
population against one hundred percent of the
hazards and vicissitudes of life, But we have
tried to frame a law which gives some measure of
protections to the average citizen and his family
against the loss of a job and against
poverty-ridden old age.
President Franklin D. Roosevelt signing the
Social Security Act on August 14, 1935
6
The U.S. Welfare State_______________________
Source Edward Berkowitz, Americas Welfare
State from Roosevelt to Reagan. Baltimore, MD
Johns Hopkins Press, 1991.
7
Financial Security in Retirement_________________
______
8
U.S. Retirement Policy_____________________

• Three-legged stool of Retirement Income

1. Pensions
2. Assets
3. Social Security
4. Earnings (For some the three-legged stool
wobbles -so a fourth leg
is added)
9
Pensions________________________

• Two types of Pensions
• Defined Benefit plans (pension)
• Defined Contribution plans (e.g., 401K, 403, are
  not really pensions they are new financial
  products to shift the responsibility and risk
  from the employer to the employee.)

10
Major Changes in the US Pension
System______________________

Peter Capelli, professor of management at the
Wharton School of the Univ. of Pa, argues The
switch from a pension plan to a 401(k) program is
the most visible manifestation of the shifting
of risk onto employees. NYTs article, Jan 9,
2006. Mary Williams Walsh, More Companies Ending
Promises for Retirement
11
Financial Security in Retirement Pensions
Watch PBS NOWRisky Business http//www.pbs.org/
now/thisweek/index_040805.htmland/or PBS
FrontlineCan you Afford to Retire?http//www.pb
s.org/wgbh/pages/frontline/retirement/
12
U.S. Retirement Policy_____________________

• Three-legged stool of Retirement Income
• 1. Pensions
• 2. Assets
• 3. Social Security
• 4. Earnings (For some the three-legged stool
  wobbles -so a fourth leg
  is added)

13
What are Assets?_____________________

• Assets are anything thats yours and that can be
  converted into cash.
• Savings
• Equity in ones home
• Stocks and bonds
• and jewelry, cars, furniture, other expensive
  consumer goods.

14
Declining Savings Rates
15
Financial Security in Old Age____________________
____
Declining Equity in Homes
16
Stock Market Values
17
Retirement Security

• To sum up Assets
• Savings (FDIC insured up to 250,000- but few
  people save enough)
• Equity in ones home (declining in value)
• Stocks and bonds (shrinking in value)
• and jewelry, cars, furniture, other expensive
  consumer goods.

18
U.S. Retirement Policy_____________________

• Three-legged stool of Retirement Income
• Pensions (problematic)
• Assets (declining)
• Social Security NEXT WEEK
• Earnings (For some the three-legged stool
  wobbles -so a fourth leg has been added)
  

19
Pension Terminology______________________

• ERISA and PBGC
• VESTING
• PORTABILITY
• COLA

20
Funding of DB Pension Systems____________________
___

• Pay-as-you-go
• Pre-funded
• Funded
• Underfunded

21
U.S. Retirement Policy_____________________

• Three-legged stool of Retirement Income
• Social Security
• Assets
• Pensions
• Earnings (For some the three-legged stool
  wobbles -so a fourth leg is
  added)

22
Social Security System_____________________

• What kind of pension system is the social
  security system?
• Defined Benefit or Defined Contribution?
• Pay-as-you-go or Pre-funded?

23
Social Security Reform
Projections do indicate that minor adjustments
have to made in order to pay the same benefits to
future generations. However, what kind of
adjustments, and who has to pay and who receives
the most benefits is a political question. The
doomsday scenarios are political propaganda! Take
a look at countries that already now have a much
higher dependency ratio (65 population to
working age group) than we will have in 2020.
Their experience shows that one can manage to
provide a good old age for the majority of
retired citizens even when this population is
larger than 20 - as long as there is the
political will to do it.
24
Social Security

• Is more than a regular financial retirement
  program. It provides
• Inflation-protected benefits (COLA)
• A higher replacement rate for workers with lower
  earnings (adequacy)
• Extra benefits for spouses with low lifetime
  earnings
• Benefits for disabled, widows survivors.

25
Social Security ______________________
The Social Security program has become the most
successful anti-poverty program in the history of
the United States. Without Social Security over ½
of all older women would live in poverty.
26
Achievements of Social Security
27
Social Security
SOURCE Office of the Chief Actuary, SSA, 2001.
28
Social Security

• How does Social Security work?
• Is it a savings plan for retirement where people
  are forced to contribute with their pay checks?
• Is it an insurance program for all who
  contribute?
• Is it a safety net to protect us and our families
  from financial ruin?

29
Social Security

• Social Security was set up as a Pay-as-You-Go
  plan
• to provide a safety net for those in need,
  including widows, children, and the old.

30
Social Security

• When Social Security ran into a cash flow problem
  in 1983, the Social Security Commission worked
  out a compromise to save the program by raising
  payroll taxes and letting the Social Security
  Trust Fund accumulate. (Now no longer
  pay-as-you-go? but pre-funded? or a funded DB
  plan? Is Soc Sec by 2042 again pay-as-you-go or
  underfunded?)(How much is currently in the
  Trust Fund?)

31
Who gets Social Security? ______________________
32
Who needs Social Security? ______________________
33
The Federal Budget Income ______________________
34
Social Security the Surplus ___________________
___
35
Do we still have a surplus?______________________
_

• If not, what is the current debt?

10.6 trillion and growing rapidly
How did we go from large budget surplus to this
huge debt?
36
Budget Surplus
37
Whats the problem with Social Security?
__________________________
38
Social Security

• Social Security is in trouble, because it has
  too much money while the rest of the government
  continues to have far too little.
• (Berkowitz, 199186)

39
Social Security

• There is NO CRISIS
• It would unthinkable to deny benefits, especially
  since this generation has been "overpaying'" into
  social security and
• There are many concrete proposals about taxing
  the wealthy to make up the projected shortfall
  easily.
• The debate about Social Security is based on
  ideological differences not fiscal reality!

40
Social Security

• Estimates show that
• The Social Security funds will be adequate to pay
  all benefits until 2042.
• In 2042, the reserves are projected to be
  depleted. Income coming into the funds at that
  time is expected to cover about 73 percent of the
  cost due at that time.
• Minor Adjustments can keep the Trust Fund
  solvent.
• National Academy of Social Insurance, 2001

41
Social Security

• The debates about Social Security Reform are
  actually about the future structure of the
  American Welfare State specifically, about the
  distribution of benefits among the three types of
  programs
• 1. Social Insurance, 2. Social Assistance and
• 3. Fiscal Welfare (Quadagno, Social
  Gerontology, p. 232)