The Galveston Plan bears little resemblance to the President’s plan. The Galveston plan does
not have voluntary private accounts. Instead, the county invests pension funds in the market; individual workers do not have accounts or any control over investment decisions. In addition, participation in the Galveston plan is mandatory.
The Galveston Plan also features higher payroll tax contributions: 13.9 percent of payroll, as compared to 12.4 percent under the traditional Social Security system
Retirement benefits are generally lower under the Galveston Plan. Under the Galveston Plan,
initial retirement benefits are lower for many workers than under Social Security. Furthermore, unlike Social Security, the Galveston plan does not adjust benefits from year to year to reflect increases in the cost of living. As a result, according to a Social Security Administration study, “After 20 years, all of Galveston’s benefits are lower relative to Social Security’s.”
Galveston could not provide a model for the country as a whole.
The 5,000 municipal employees covered by the plans run by Galveston and the two other Texas counties opting out of Social Security do not make any contributions to support current Social Security beneficiaries. If the United States as a whole adopted a Galveston-like plan,
there would be no one left to pay the $500 billion annual cost of benefits for the nation’s 45 million current Social Security beneficiaries .
In other words, municipal employees from these three Texas counties are “free riders” who are escaping their share of the national obligation to finance Social Security for current retirees. The United States as a whole cannot “free ride” in the way that government employees in one relatively small county can.
Does Galveston Offer a Model For Social Security Reform? | Center on Budget and Policy Priorities