Third, the private investment management industry is more responsive to the needs of investors than government policy makers. With privatized retirement, workers would have a greater variety of investment alternatives, better tailored to their individual and family circumstances, than is typically provided by government plans. In contrast, under Social Security, all retirees face the inflexible benefit prospects that policy makers choose. Lastly, privatization of retirement would have beneficial socio-political effects. Under Social Security, politicians clearly have succumbed to the temptation of earning political points with present beneficiaries at the expense of future generations.
Privatization removes political profiteering as a motive for bad retirement plan design.
Until recently, states, counties and municipalities were allowed to exempt their employees from Social Security. Those that did, and formed private or other public retirement systems, enjoy greater retirement security than participants in Social Security ever will. In one example, municipal workers in three Texas counties opted out of Social Security in 1981. Their private retirement plans have earned an average annual 6.5 percent return versus the mere 2.2 percent implicit rate of return they would have earned under Social Security. Consequently, if Oregon wishes to opt out of Social Security, it will require special congressional action to void the prohibitions of the 1983 act.