Out on the hustings, President Bush likes to make a case for allowing younger workers to invest some of their Social Security taxes by citing the example of the Thrift Savings Plan, private investment accounts available to members of Congress and other federal employees.
“Doesn’t it make sense for members of Congress to give younger workers the opportunity to do the same thing with their money that they get to do in their retirement system?” the president asked this week in Cedar Rapids, Iowa, baiting his congressional opponents. “Frankly, if it’s good enough for federal workers and elected officials – putting aside some of your own money in a personal savings account – it ought to be good enough for all workers in America.”
What Bush fails to mention is that his accounts differ from Thrift Savings Plan accounts in a key way: They would be carved out of the Social Security taxes nongovernment workers pay. By contrast, federal employees get their accounts in addition to a traditional Social Security benefit check.
Democrats have said they would be much more inclined to embrace the private accounts – the signature item of the president’s proposed Social Security overhaul – if they, too, were treated as an add-on to the traditional benefit check, rather than a partial replacement for it.
One Republican, Florida Rep. Clay Shaw, who oversees a House Social Security subcommittee, has filed legislation that would create the accounts as an addition to the program. But so far the broader debate over ensuring Social Security’s long-term solvency has stalled over opposition to the president’s “carve-out” accounts.
“It is just so unfair, misleading and fraudulent,” Senate Minority Leader Harry Reid said of the president’s references to the Thrift Savings Plan. The Nevada Democrat accused the administration of using carve-out accounts as a Trojan horse for eliminating Social Security, by siphoning off the taxes that pay benefits.
Rep. Nancy Pelosi of California, the top Democrat in the House, said: “I think what the president is demonstrating is the weakness of the argument he is out perpetuating. It’s the classic case of you can put lipstick on a pig … but it’s still a sow.”
White House spokesman Trent Duffy said the president does not highlight the Thrift Savings Plan because of the way it is funded but because of the investment options and risk management it affords.
“The president talks about the TSP in the context of a safeguard approach,” Duffy said. “And, conceptually, it is the same thing if you – voluntarily – are given the option to set aside funds in a limited amount of investment options that might get a better return over a set period of time.”
Federal employees, including members of Congress, have a retirement program that is the model of what most investment advisers suggest for any worker. Advisers liken it to a three-legged stool.
The employees pay into Social Security, qualifying them for a government retirement check. A portion of their pay also goes into a pension program, the Federal Employees’ Retirement System, which pays a benefit based on their tenure. And they have the option to participate in a so-called defined contribution program, the Thrift Savings Program.
Like a private-sector 401(k), it lets workers make contributions – a portion of which the government matches – that can be invested five different ways. Those include government and corporate bond funds, plus a stock fund that tracks the S&P 500.
The stock funds performed well in the 1990s, with annual returns over 37 percent one year. But after the 2001 recession, they have posted annual losses as high as 22 percent. Over the most recent 10-year period, all the funds were profitable, according to the plan’s Web site.
The private accounts the president has proposed for younger workers would be funded with up to 4 percentage points of the 12.4 percent payroll tax they now pay into Social Security.
On the stump, Bush does not mention the different manner in which the Thrift Savings Program is funded, only the example it should provide in the Social Security debate.
As Duffy suggested, the president also highlights the controls on investments in Thrift Savings: “For example, federal employees can’t take their money and put it in the lottery, or you can’t take it to the racetrack,” Bush told the Cedar Rapids crowd.
At the Iowa event, the president was joined on stage by a retired federal worker who reveled in the benefits of having a retirement program diversified by the add-on nature of the Thrift Savings Program.
The retiree, Joe Studer of Robins, Iowa, gets a pension from the precursor to Social Security for federal workers hired before 1984, the Civil Service Retirement System. He also draws money from an Individual Retirement Account, which is available to all government and civilian employees, and has the proceeds of his Thrift Savings Plan.
“My Thrift Savings Plan is approaching $100,000,” the 67-year-old told the presidential audience.