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| Briefing Book |
| White House Conference |
National Association of State Retirement Administrators444 North Capitol Street, NW, Suite 234Washington, DC 20001 Tel - (202) 624-1417 Fax - (202) 624-1419 web page - www.nasra.org email - jeannine@nusra.nrg
Statement of J. Sparb Collins, PresidentThe members of the National Association of State Retirement Administrators (NASRA) are the administrators of the State retirement systems for the 50 States, the District of Columbia, and the territories of American Samoa, Guam, Puerto Rico and the Virgin Islands. On behalf of these retirement plans and the millions of public employees, retirees and beneficiaries they cover, I would like to thank the Administration for the opportunity to participate in the ongoing discussions surrounding one of the most valuable national retirement programs, Social Security. With the aging of the baby boom population and the growing strain on federal entitlement programs, officials at all levels of government must work together to address all areas of our national retirement policy. In addition to fostering employer- provided pensions and personal savings, national policy must also address the financial solvency of the Social Security system. However, it will be a delicate balance to ensure that fixing one leg of the proverbial retirement security stool does not break one or both of the other two. The members of NASRA are very interested in providing support, expertise and accurate information for such discussions and are hopeful that you will continue to call upon us as you tackle this arduous task. The Social Security system is a vital program, and its financial well being must be preserved. Numerous proposals intended to extend the life of Social Security have been forwarded with far ranging and reaching proposed revisions. One provision that has appeared in various proposals is to mandate Social Security coverage for all newly hired state and local government employees. While NASRA supports the affiliation of public pension plans with Social Security on a voluntary basis, we strongly oppose mandatory coverage of public employees under the system. It is important to remember that at the time the Social Security system was established in the 1930s, public employees were barred from participating in the system based on the constitutional interpretation that the federal government had no legal authority to impose taxes on states and localities. State and local plans at that time designed their own retirement plans in reliance on that exclusion, and benefits were structured and tided on that basis. It was not until the 1950s that state and local government pension plans were given the voluntary option to elect Social Security coverage. While many public employers elected to complement their own pension programs through coverage under Social Security, other units of state and local government decided not to participate in Social Security but rather provide their own independent programs of retirement benefits which they believed (and continue to believe) best suited the needs of their workforce and their citizens. These systems must provide comparable benefits to the retirement, disability, and survivors' benefits provided by Social Security. In most cases, these systems provide substantially higher benefits. In addition, many provide flexibility to specific classifications of employees who are ill-suited to participate in a program which does not allow for normal retirement until age 62 or later and also provide supplemental benefits in the health care area. Mandatory coverage of newly hired state and local government employees will seriously disrupt the financial standing of these systems, requiring reductions in benefits, increased costs, or both. Public employer contributions to these plans already average between 13 and 14 percent of payroll, and employee contributions to these plans average between 8 and 9 percent of pay. The added Social Security payroll tax of 6.2% on each, on top of what they already contribute to the pension fund, would simply be untenable for many employers and employees. In addition, the coverage of newly hired state and local government employees does nothing to solve the long-term solvency of the Social Security system. Current projections by the U.S. General Accounting Office (GAO) estimate that such coverage would, in the short-term, provide additional cash flow to pay current beneficiaries. However, such coverage also imposes additional liabilities on the system and ultimately results in increasing the expenditures that must be paid out of the Social Security program. These state and local systems effectively manage retirement funds on behalf of public employees and are models for effective management of retirement savings programs that should be studied for best practices, not raided as a short-term and short-sighted fix for Social Security. Additionally, those who espouse the unfairness of public sector employees "double dipping" by qualifying for Social Security benefits from either a second career or as a spouse, are simply uninformed. Current law already addresses this issue through the "windfall elimination" and "government pension offset" provisions that reduce Social Security benefits for those receiving a pension from non-covered government employment. The true issue of unfairness surrounds the federal government attempting to "change rules in the middle of the game" as they relate to these retirement systems, participants and taxpayers. State and local employees, in partnership with their employers, contributed to and successfully managed these plans for the range of retirement benefits offered, with a commitment to long-term retirement savings and security. They should not now be punished for their planning and initiative. NASRA supports efforts to work with the national government as partners in our federal system, however, federal intervention into or preemption of the legitimate role of State authorities would be a drastic departure from the principles of federalism. There are serious constitutional and administrative problems with mandatory coverage, including the encroachment on State sovereignty, and the usurpation of State governments' and their political subdivisions' authority to perform their responsibilities and meet the needs of their workforce and their citizens. For those public employers that have elected to have their employees covered by Social Security, a key area of concern is the seemingly never ending confidence crisis being faced. As we encourage our participants to plan for their financial futures through personal savings, employer sponsored pension plans, and Social Security, we frequently hear from those participants (particularly the younger ones) that Social Security is nothing other than a 1930's ponzi scheme that for them will be a financial burden rather than a financial blessing. To a certain extent, this is understandable in light of the frequency with which the rules seem to change and the continual bombardment of negative press. Rule changes in such areas as eligibility age, benefit levels, COLA's and contribution amounts make it virtually impossible for even the strongest advocates of financial planning to develop viable long term arrangements. With regard to negative press, there are those who believe that the dire predictions of failure simply set the stage for the demise of the Social Security system to be a self fulfilling prophesy. It is critical that action be taken which allow the public at large to once again have confidence that Social Security will be there for them and that it will constitute a key component of their financial security in old age. Again, we appreciate your commitment to our national retirement savings policy and thank you for the occasion to relay our views. If we can be of further assistance, please feel free to contact me at (701) 328-3900 or NASRA's Director of Federal Relations, Jeannine Markoe Raymond, at (202) 624-1417.
1998 - 1999
Sparb Collins (ND),
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