Reengineering Social Security in the New Economy , by Thomas F. Siems, January 23, 2001. State and local plans can provide superior benefits because they predominately 'prefund' future benefits, either by saving and investing the program's income or by allowing the participants to save and invest their contributions in individually owned accounts. Lips cites San Diego's plan as an excellent example of how a system based on individual investment can be successfully administered. Employees are required to contribute 3 percent of their salaries to their private retirement accounts but may contribute as much as 7.5 percent. The city matches 100 percent of the employee's contribution, including the voluntary portion.
Employees can invest in any or a combination of five funds that represent various levels of risk.
The average nominal rate of return over the past 15 years has been over 8 percent. For the economy and society, the ability of states and localities to invest in private companies creates the potential for cronyism and manipulation of the market. Social Security Privatization No. 16. The Cato Institute Project on Social Security Privatizaton E-mail the Webmaster 1000 Massachusetts Ave.