A Silly Comparison to Enron

February 28, 2002

Christian Weller of the Economic Policy Institute, in an "Economic Snapshot" released January 16, asks "What if Enron Workers Had Traded Social Security for stock?", examining the possibilities if workers with personal accounts based up plans put forward by the President's Commission to Strengthen Social Security had suffered the same fate as Enron workers who lost their 401(k) contributions.

Weller imagines an average wage female worker who enters the workforce in 1966 and redirects either 2 or 4 percentage points of her Social Security payroll taxes to a personal account. In exchange, he says, she gives up either 16 or 32 percent of her traditional Social Security benefits. From 1966 to 1985 she invests these contributions in an S&P 500 index fund; in 1985, upon beginning employment with Enron, she shifts her existing balance and new contributions to Enron stock.

Upon retirement, Weller says, she would receive far less than Social Security would have paid her, since Enron's stock is now practically worthless. Her full promised monthly Social Security benefit would have been $917; had she invested two percent of her wages in Enron stock she would receive only $770 per month in total benefits, and just $624 in total benefits if she had moved 4 percent of her wages to Enron stock. "In the end," Weller says, " the individual account would have replaced less than 5 percent of the sacrificed Social Security benefits."

As a political hit piece, this 'Economic Snapshot" is comical; as analysis, it is next to preposterous. To begin with, none of the reform plans put forward by the President's Commission – in fact, none of the reform plans put forward by anybody – would allow individuals to invest their account personal contributions in a single stock, or even a small number of stocks. Most reform plans, including the Commission's, model their investment choices on the federal Thrift Savings Plan, which successfully serves millions of federal employees. Under these plans, workers could choose a combination of highly diversified stock, corporate bond, or government bond funds. In other words, the scenario where a worker invested his Social Security account in Enron or any other single stock is pure fiction. It simply could not happen.

Second, an average wage worker under the Commission's "4 percent personal account plan" who contributed her entire career would give up 21 percent of her "promised" traditional benefit, not 32 percent as Weller assumes.

Third, while Social Security can pay full promised benefits today, it cannot do so in the future. For a future worker, the actual "payable" benefit – the benefit Social Security will in fact pay her under current law – is just 75 percent of what is promised. So a future retiree wouldn't actually receive the $917 promised traditional benefit, but just $687. Added to this traditional benefit would be the proceeds of her personal account.

The Commission's reform plans were scored by Social Security's actuaries and assumed the worker invested in a modest portfolio of half stocks (earning somewhat less than the historical average) and half bonds. In these cases, an average wage female worker would receive a total retirement income exceeding Social Security's "payable" benefit by over 40 percent – and even exceeding the benefits that Social Security promises, but cannot afford to pay. Assuming an all-stock portfolio, as Weller does, total retirement income would exceed promised benefits by substantially more.

2005 Index | 2004 Index
2003 Index | 2002 Index | 2001 Index
2000 Index | 1999 Index | 1998 Index