Social Security: It’s Time to Solve the Problem
In my decades of lecturing to CPAs on economic issues, younger CPAs conceded that they do not bank on ever receiving social security. They questioned whether there would be anything left for them. Their dissatisfaction stems from the perception that they are bailing out the system with little hope of anything being there for them despite all that they paid into the system.
Many Americans believe that Social Security’s failure are failures in our “capitalist” system when, in reality, Social Security is, just as the name implies, a socialist solution enacted in response to the Great Depression. Its failure should reinforce the point for that socialism is the problem and not the solution.
We fiscal conservatives have failed at making that point which then limits possible solutions.
America’s Social Security debate has been asking the wrong question all along. Washington asks how much more workers should pay, how long they should work, or how benefits might be changed. Those may eventually be legitimate subjects for discussion.
But that should not be the starting point because it limits identifying and resolving what the problem actually is. The starting point should be much simpler and that is that our first responsibility is to the beneficiary. That perspective changes the discussion and the entire spectrum of options available to solve the problem.
Social Security was created to provide financial security to workers and their families. It was America’s first full foray into socialism. Workers and employers have contributed to the system throughout their working lives. Yet the assets accumulated in the Trust Funds are governed by an investment structure unlike that of virtually every professionally managed pension system.
By law, Social Security reserves not needed for current benefits must be invested in interest-bearing securities backed by the United States government. That restriction has consequences. During the extraordinary monetary policies following the 2008 financial crisis, interest rates remained exceptionally low for years. Whatever benefits those policies provided to the broader economy, Social Security had no ability to adapt its investment strategy.
The problem was not the people making monetary policy. They had a different mission. The problem was the structure. Social Security beneficiaries had no independent fiduciary whose overriding responsibility was to ask whether that structure continued to serve their long-term interests.
That is what should change.
To restore some semblance of reality, there needs to be a Social Security Restitution Act built around a straightforward principle or restoring the beneficiary to the center of the system. Make the system more in the name of the recipient and not to the benefit of the government. Restore individual freedom.
The first step is restitution. When I was a PA State Representative, I estimated that the extraordinary low-interest-rate environment associated with quantitative easing from 2008 through 2023 resulted in more than $2 trillion of foregone investment earnings when compared with the type of long-term return assumption commonly used by major pension systems.
Reasonable people can debate the appropriate benchmark and therefore the exact amount. They should. But that debate should finally occur.
If national monetary policy imposed an extraordinary opportunity cost on a retirement trust legally prohibited from diversifying its investments, Congress should determine what portion of that cost should appropriately be restored to the Trust Funds.
Restitution alone, however, would merely repair part of yesterday’s problem. We also must prevent ourselves from repeating it.
The second step is to establish a truly fiduciary investment structure for Social Security. The existing Board of Trustees has six members. Four serve because of their federal positions—the Secretaries of Treasury, Labor, and Health and Human Services, and the Commissioner of Social Security. Two additional members may serve as public representatives. These are important public officials performing important responsibilities. But their responsibilities extend far beyond the singular interests of Social Security beneficiaries.
A reformed structure should include independent fiduciaries charged explicitly with protecting those beneficiaries over generations. They should operate under clear standards of prudence, diversification, transparency, independence, and accountability. They should have access to investment tools routinely available to other professionally managed retirement systems.
That does not mean handing trillions of dollars to Washington to speculate in individual companies. It means quite the opposite.
The framework would prohibit direct investment in individual companies. Diversification could instead occur through broadly diversified mutual funds, exchange-traded funds, guaranteed insurance products, and similar professionally managed vehicles. Investments would be non-voting so that the federal government could not use Social Security assets to influence corporate governance. Concentration limits would further prevent the Trust Funds from becoming a dominant force in any investment vehicle.
Those safeguards matter. The purpose is not to give government greater control over American capital markets. It is to give beneficiaries the advantages of prudent diversification while specifically denying government the ability to use their retirement assets for political or corporate influence.
There will be objections to this approach. There should be. There will be those struggling with the concept at all and wanting total dismantling of social security. The concern though is that we have to start where we are and not start where we may want to be. The Social Security system needs to be stabilized first and then restructured to give greater control to individuals.
No proposal involving the retirement security of generations of Americans should escape rigorous scrutiny. Some will question the cost of restitution while others will worry about market risk. Others will appropriately ask how independent fiduciaries can be insulated from political influence.
Those are not reasons to avoid reform. They are the questions responsible reform must answer.
Social Security’s own Trustees use a 75-year period for their long-range actuarial analysis because it encompasses approximately the remaining lifetime of virtually all current participants. Our public policy should demonstrate the same long-term perspective.
We cannot solve a 75-year problem with a two-year election-cycle mentality. Nor should we define “solving Social Security” as merely moving an insolvency date further into the future. That is nothing more than postponement. Solving the problem means creating a structure capable of serving today’s retirees, today’s workers, and workers who have not yet entered the workforce.
That requires political courage.
Generations of Americans have done what was asked of them; paycheck after paycheck, year after year. Employers and employees all contributed to Social Security with the expectation that the system would be there when they needed it. They kept their promise.
Now government must demonstrate equally durable stewardship of the resources entrusted to it. Congress can continue debating higher taxes, later retirement, or reduced benefits or it can first ask the question that should have guided this debate all along which is “What would we do differently if the beneficiary were sitting at the table?”
The fix it easy but requires courage and political will.
- Restore what is reasonably owed.
- Create independent fiduciary representation.
- Permit prudent diversification.
- Protect the capital markets from government interference.
- Measure results transparently.
This builds a Social Security system designed not merely to survive the next funding crisis, but to serve generations yet to come. It is crucial to remember that every trust has advocates and every beneficiary deserves one.
The American worker has fulfilled his or her obligation.
Now it is our turn.
Don’t mask the problem.
Solve it.
Frank Ryan is a CPA, retired U.S. Marine Corps Reserve Colonel, former member of the Pennsylvania House of Representatives, and former Vice Chair of the Pennsylvania Public School Employees’ Retirement System (PSERS).
