Social Security provided retirement benefits for 44 million workers and their families in 1997, and provided most of the retirement income for two-thirds of retirees. But projections say that by twenty years or so from now Social Security will begin to face a shortage of funds, unless changes in the system are made.

Wall Street investment companies, and many conservatives, want to privatize Social Security, allowing these companies to make huge amounts of money managing workers' retirement savings. Under privatization, savings could be invested in the stock market, rather than government bonds, where they are now.

But privatization would be a terrible idea for most workers. Here are six reasons why:

1) The stock market is a wild gamble.

Advocates of privatization love to argue that stocks provide much higher returns than Treasury Bonds. But, as recent months have shown, the stock market can swing wildly from gains to losses. Workers can lose out either if the whole market does badly, or if their individual investments do worse than the average. By one estimate, a worker who retires after 35 years faces a one-in-four chance that she will have only 25% as much money in the bank as she had anticipated.

2) Advocates of privatization lie in comparing Social Security to the stock market.

Projections that Social Security will run out of money several decades from now assume that economic growth will be slow, much slower than in the past. If this happens, wages will grow slowly and Social Security tax revenues will too. But privatization advocates project high returns on stocks, which only happen during times of fast growth. If growth is slow, then stocks will not do well. On the other hand, if growth is fast, Social Security will have enough money to pay for all its obligations to workers.

3) Private companies charge huge administrative costs.

Social Security is a very efficient system, spending a mere 0.8% of contributions on administration. Little money is spent on managing investments, since all the funds are used to buy U.S. Treasury Bonds. In contrast, private companies would charge 5% to 7% of workers' money to manage the investments and to guarantee definite monthly payments once a person retires. And the percentage fees would be highest on low-income workers, since the companies would make less money on them.

4) Social Security is crucial for low-income workers.

While Social Security benefits provide only 29% of the retirement income for the wealthiest fifth of retired workers, they provide 89% of the retirement income for those in the bottom fifth. In 1994, Social Security kept 42% of all its recipients out of poverty.

5) Social Security provides death and disability insurance.

When a worker becomes disabled or dies Social Security provides for their families. This insurance system takes tax money and redistributes it from those who are fortunate enough to work until retirement to those who suffer accidents or illnesses. A private system, in which each person is responsible for their own retirement savings, would reduce or eliminate this insurance.

6) There are better alternatives than privatization.

There are several ways of providing more money for the Social Security system which would serve employees better than privatization. First, the government could invest part of Social Security taxes in the stock market. Second, the cap above which high-wage workers do not have to pay Social Security taxes, currently set at $68,400, could be raised or eliminated, thus bringing more money into the system.

[This article is adapted from "Wall Street's Fondest Dream: The Insanity of Privatizing Social Security," Christian Weller, Dollars and Sense, Nov/Dec 1998. Subscriptions to D&S Magazine are $18.95, from 1 Summer Street, Somerville, MA 02143. Call 1-888-736-7377]

Fleming Named to AFL-CIO Social Policy Committee

"Social Security is America's most important and comprehensive family protection system. It is the foundation of retirement income for America's workers and their families and the principal insurance against family impoverishment due to death or disability. Its insurance-based system allows Americans to work together to protect each other against the economic risks they all face individually. Social Security is the bedrock of family income protection and its role must not be compromised nor its financial condition weakened," states the AFL-CIO as the debate intensifies over this critical issue.

The AFL-CIO and its affiliate unions, including the BMWE, continues to carry out an aggressive Social Security education and mobilization campaign. Efforts include grassroots lobbying, community summits, education workshops, and national strategy and training sessions.

A Social Policy Committee has been established by the AFL-CIO and BMWE President Mac A. Fleming has been appointed as Rail Labor's representative to that committee. Rail Labor has a vital interest in Social Security not only because of its strong commitment to all workers in America, but also because of the impact changes in Social Security have on Railroad Retirement.