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Social Security and Defined Contributions

There is a basic concept that when someone works for somebody, they get paid. If part of the pay is eligible for retirement benefits, then that becomes an immediate obligation of the payer. Even though the payments to the employee will not be made until after his retirement, expenses incurred – and funding for that payment originates – at the time it is earned.

Retirement plans are of two types: defined contribution and defined benefit. Both have the same goal; the difference is in the mechanics.  Examples of a defined contribution plan are 401Ks and profit sharing. With these, you put the money aside and the money will grow and be there later.  Defined benefit plans include Social Security, most state and local pensions, and union plans like GM. These are plans in which people get retirement from some formula related to their salary. But whether it is a defined contribution or defined benefit plan, in both cases, the obligation to pay those benefits originates at the time it is earned by the employee and it must be funded at that time. In the world of business, lack of appropriate funding of those promises of retirement benefits can land someone in jail.

What would you think about someone who promised to put retirement funds aside and didn’t? They would be crooks. And not only that, when they issued their financial reports, they hid the fact that they were obligated to make all of these payments in the future.

We need to hold these legislators that continue to perpetrate this fraud accountable.

 

Dick Durbin On Social Security

In another example of reckless rhetoric, Senator Dick Durbin recently stated on Meet the Press  that Social Security does not add one penny to the deficit. Of course, this idea is only technically true in the sense that the payments to fund Social Security are being stolen from present day workers who have every right to believe and expect that the money taken out is set aside for retirement pensions. Only someone who has no contact with economics, accounting or the actuality of funding an organization could be as boldly ignorant as Mr. Durbin has been.

Even worse, Durbin went on to claim that untouched, Social Security will make every promised payment for more than 25 years. What an outrageously incorrect statement. There is no money available from any actuarily sound fund of money from which these payments can be made. Social Security is bankrupt and Mr. Durbin knows it. It is despicable that a Senator can boldly lie to the public without rebuke on such an important topic as Social Security.