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Former Galveston County Judge Ray Holbrook.
Text from Former Galveston County Judge Ray Holbrook's article on the Galveston County Social Security opt out of 1980, written in 2000. Unedited.
Do you want to substitute a million dollar retirement system on a national basis for the outdated 65-year old Social Security program? Here is how it was done for Galveston County, Texas, employees in 1980. But now it will take the Congress to get it done.
In the late 1970's it was well known that Social Security was in serious financial trouble with looming bankruptcy, just like we face now, and the Congress and the President were not dealing with it, just as now. What was less known was that local governments had an option to withdraw from SS and set up their own retirement program. The SS Administration did require, however, a 2-year notification prior to withdrawal. Galveston County's forward thinking Legal Dept. Director, the late William D. Decker, submitted a notification letter in January 1979 and started the 2-year period. During this time the issue was studied and discussed by the Galveston County Commissioners Court and all the county employees.
Mr. Decker brought in a consultant, Mr. Don Kebodeaux, Chairman of First Financial Capital Corp. of Houston to design a plan. The Commissioners Court directed that the plan have the exact or better benefits as SS at the same cost to the county and the employees. Impossible? NO! The plan developed by First Financial comprised a life insurance element for employees which would protect families of deceased employees, a disability insurance element as good as SS and a retirement element with annuities purchased from major life insurance companies designed to surpass SS benefits. It did it in spades!
How could this be done and why abandon SS? The Galveston County plan was a "funded plan" with each employee investing in their own retirement in contrast to SS which is "pay as you go." That is, my children and yours are paying for my SS benefit and I paid for my parents and other seniors. But that can't continue forever just like any other pyramid scheme. Right now there are 3 workers paying for each retiree in SS. In 1960 there were 15 workers per retiree and in 2030 there will be only 2 workers paying benefits for each retiree. That is a disaster waiting to happen.
In Galveston County we decided to avoid the future SS shock with this new plan. A calculated decision was made not to invest in the stock market even though retirement income would have been much higher, at least twice as much, if that had been done. Nevertheless retirement income for employees with 20 to 40 years of service is calculated to be 2 to 5 times the retirement benefits of SS. Disability insurance pays 60% of salary up to $5,000 per month and life insurance is 3 times annual salary up to $50,000 per year or a total of up to $150,000. In my own case after 14 years in the Alternate Plan investing only in bonds and 27 years in SS, my retirement income from the Alternate plan is about 2/3 my SS income. After 20 years it would have been equal and after 30 years it would have been at least double.
There was, of course, no guarantee the plan would have been as successful as it has been, and there was considerable opposition from labor unions, some minorities and some traditional liberal democrats including many Galveston County elected officials, all of whom were democrats at the time. Some of the Commissioners and I participated with First Financial in 8 to 10 employee meetings to explain the plan. We also asked SS representatives to debate the plan in the employee meetings which they did. By then a majority of the Commissioners Court were strongly for the Alternate Plan and an election for all county employees was scheduled for the Fall of 1980. I campaigned for the plan as did some of the Commissioners. The election carried by about 3 to 1 in favor of the Alternate Plan and the Commissioners Court voted 4 to 1 to implement it on January 1, 1981.
The Alternate Plan has been marvelously successful for the past 19 years with a return on the retirement investments of over 8.5%. That is 3 or 4 times the return on SS investments right now, and we are not investing in the stock market. Even though the return from a stock market investment would have doubled our actual return, it was politically wise to buy annuities with a guaranteed returns. Furthermore the investments in life insurance annuities are the same for all employees and are handled by First Financial after taking bids. As a result each employee need not be an expert in investments and there is no chance some employees will lose everything and others will make a huge gain.
Those who criticize SS privatization because of stock market ups and downs, or the lack of knowledge of many employees in investments, have not done their homework or they would be aware of what we did in Galveston County. Each employee has their own retirement account which is there when they retire or is owned by their families if they die. In case of death the families also receive the life insurance payment. This is not the case with SS. There is no account with your name on it and life insurance is a pittance. Galveston County's plan is almost perfect with no risk except to pick strong first rate life insurance companies. SS is no more secure than the Alternate Plan.
Brazoria and Matagorda Counties joined Galveston County in the Alternate Plan in 1982 and Harris County along with some 50 other counties were ready to join when Congress passed a bill in 1983 to "save SS." That bill increased taxes, gradually raised the retirement age and closed the door on other local governments withdrawing from SS. It was authored by former Congressman Jack Brooks of Beaumont.
None of the current members of the Galveston County Commissioners Court were on the Court that adopted the plan and only 2 of 3 other officials are still in office. However there is now essentially 100% approval of the Alternate Plan among officials and employees as well as in the county as a whole, including labor unions and most hard core "Roosevelt democrats." I urge the Congress to closely examine the Galveston County plan and use it as a model for the nation. And you can strike a real blow for freedom if you will inform your Congressman and Senators and urge them to support SS reform that provides a mandatory retirement plan like Galveston County. That is really "saving SS."
Ray Holbrook, Galveston County Judge, 1967-1995
January 2000
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