The idea of allowing individuals to opt out of a mandatory state-funded pension system in favor of privately investing their own retirement funds is not new. In 1980, Chile became one of the first countries to allow its citizens to opt out of its failing government system. In 1981, before Congress made participation in Social Security wholly mandatory, three counties in Texas opted out to design their own retirement plan. And a record number of Americans, especially younger ones, are quietly opting out themselves by building their nest eggs with employer-provided 401(k) and 403(b) pension plans.
The success of these private alternatives to Social Security led Oregon in 1997 to become the first state to pass a resolution calling on Congress to grant individual states waivers to opt out of Social Security and explore alternative pension plans. Colorado passed a similar measure in May 1998, and six other states, including Arizona, Indiana, Missouri, New Hampshire, South Carolina, and Washington, are also considering opt-out measures.
How successful have these private alternative plans been? What follows is a brief analysis of how these plans have performed or are likely to perform as well as recommendations for how Michigan can take positive steps to protect its workers and retirees from the coming Social Security crisis.