What is the Plan For America? (PFA)
The Plan For America is a comprehensive solution to America’s Social Security funding crisis as well as a remedy for our suffocating national debt.
It is very distinct and different from any of the proposed solutions that have been offered thus far because it has a powerful, rapidly-growing funding source that ultimately enables it to fulfill its objectives.
It not only resolves the retirement dilemma but also deals with federal and state debt and ultimately could supplant taxation as the primary governmental funding source.
It presents the best of two worlds: its guarantee is the “full faith and credit” of the U.S. Government and the investment returns are the stock market less 2% for the security trust charge.
This plan is truly a Plan For America because it provides a bigger slice of an expanding pie to each citizen while at the same time solves the nation’s financial problems.
How would it work?
Establish a private (no government control or affiliation) retirement trust which we will call the FAST, or For America Security Trust.
The FAST would have a contractual agreement with the U.S. Government and each of the 50 state governments. This contract must be inviolable and, if possible, become a constitutional amendment to safeguard the people’s retirement assets from politicians.
The contract would relieve the U.S. Government of the $14+ trillion dollars of unfunded liabilities arising from Social Security. It could even be extended to deal with the unfunded pension liabilities of the state governments.
It is clear that equity-type returns are needed for Social Security, but there must be a guarantee in place in order to ease participant anxiety and be politically supportable by all constituencies. The FAST would guarantee that each participant would receive, at the time the retirement payout commences, the greater of:
- what it would be under the current Social Security program, or
- at least 4% of the total of all deposits made into the individual participant’s FAST account plus a 4% compounded annual return.
However, if the retiree’s account was larger than the guaranteed amount, the retiree would receive 4% of his total accumulation amount as of the end of the previous year.
The larger of the first two scenarios would become the minimum payout going forward. In exchange for that guarantee, the trust fund would take 2% of the value of the account each year.
The entire amount of the present 12.4% Social Security payroll tax payments would be put into an all-U.S. equities index (only companies domiciled in the U.S.) that would encompass small, mid, and large companies — similar to a total stock market index.
Since this would be an index, there would be minimal management, transaction, and maintenance fees that would be paid by the FAST out of its 2% annual charge.
In order for the trust to meet its current obligation and the additional obligations generated by a market downturn, the trust would have the ability to sell longer-term callable bonds that would be backed by the full faith and credit of the U.S. Government.
The government would pay the interest on these bonds, but the trust fund would ultimately call in and pay off the bonds out of its cash flow from the annual 2% charge.
This 2% annually on the cumulative amount with trillion-dollar-plus contributions becomes an enormous growing cash flow in perpetuity enabling the realization of the Plan For America’s ambitious objectives.
How the Plan works
Presently each U.S. citizen that has an account with Social Security is sent (electronically)an annual statement indicating the account value and the projected benefits that will be available upon retirement.
For those who are already receiving the benefits because of retirement or disability, the benefit level has already been established.
Under the proposed plan, the entire Social Security payroll tax amount would be invested in the FAST stock index and the total return, which includes dividends and interest as well as realized and unrealized capital gains, would be credited to the individual’s account. From this total, the 2% annual FAST charge would be deducted.
Upon reaching retirement age — as early as age 60 at the participant’s option — the FAST participant could begin receiving monthly checks or voluntarily defer receipt of benefits for as long as he/she chooses. If the benefit payments are started, but afterward deferred, then each payout not taken would be considered a contribution. Each contribution would be tax deductible up to the limit allowed and would increase the guaranteed payout by 4% of the contribution beginning in the following year.
The Terms of the Contract
- U.S. Government relieved of $14+ trillion of unfunded Social Security liability.
- U.S. Government must allow its citizens to opt out of Social Security and to join the FAST program. It is a voluntary, private program, not a government mandate; therefore, it is not a constitutional question.
- U.S. Government must get out of the retirement business with the exception of those who do not join the FAST. It must also divest itself of all private enterprise — it cannot be in competition with the companies in the FAST.
- The 12.4% contribution (the present Social Security payroll tax) would go to the FAST and be credited to the individual’s account plus it would be 100% tax-deductible (federal and state) with no income thresholds or alternative minimum tax exposure. At the participant’s option, the contribution could be 12.4% of total earned income not limited to the $118,500 cap. Also, up to $100,000 additionally could be contributed on an annual tax-deductible basis.
- The growth of the assets in the trust would be tax-free as would all distributions for retirement and disability benefits.
- All ordinary dividends on common stock of publicly-held U.S. domiciled corporations would be tax-deductible to the corporation and tax-free to the recipient in order to make equity investing more advantageous and help the FAST grow its asset base.
- The retirement payout would pass to the participant’s heirs upon death with no inheritance or estate taxes.
- The FAST would issue bonds to cover the current retirement benefit obligations. These bonds would be backed by the full faith and credit of the U.S. Government and the interest would be paid by the government. These bonds would be callable and would ultimately be called in and paid off out of the cash flow that the trust will earn from its 2% charge.
- After the FAST’s revenues exceed the annual payout requirements and all outstanding bonds have been called in and retired (no debt), then the surplus from the 2% annual FAST charge would be paid out to the federal and state governments.
- The fee sharing would be on a 50/50 basis. The Federal Government would get 50% and the states would get 50% — the state’s share would be apportioned on the basis of the percentage of the national GDP that was produced in each state. The purpose of this arrangement is to incentivize each state to have a business-friendly environment and to compete vigorously for business. This revenue sharing money should be used by the federal and state governments to reduce indebtedness first and after all debt is paid off, then tax reduction.
- The strength and enforcement of this contract is the key to the permanency of the solution. Laws can easily be changed by a new Congress, but a national contract with the people’s retirement trust would be much more difficult to break. Ideally, a constitutional amendment regarding the sanctity of the contract would be even more secure.
The Proxy Vote — Two Great Imperatives
For America Security Trust (FAST) stock ownership brings the solemn responsibility to vote the proxies in a way that is most beneficial to the participants and beneficiaries.
The proxy is an authorization that is given to a representative to vote the shares (usually at a corporation’s annual meeting). These corporate elections determine the make-up of the board of directors and other important policy decisions. The sanctity and transparency of this process is of critical importance to the long-term success and independence of the FAST. The two great imperatives to protect the future of the FAST are:
- complete independence from any governmental control or influence, and
- safeguards that prevent corruption and self-dealing.
The Process — once each year each participant/beneficiary of the FAST will be sent a proxy (ballot) to vote for one of the five trustees that would serve five year terms (term limit — one term only). The number of votes that the participant would have would be determined by the number of dollars (rounded to the nearest dollar) in his/her FAST account.
These trustee members would have the responsibility of administering the entire FAST including the retirement and any other functions or aspects of these programs. The trustees would appoint three-person mini-boards that would have the responsibility of analyzing, monitoring, reporting on, and voting the proxies of the companies in the FAST stock index that they were assigned to. The specific companies that the mini-boards would have under their authority would change every three to five years in order to prevent corruption from developing as a consequence of a prolonged relationship between the corporation and the overseeing mini-board.
The FAST Board would hire independent accounting and consulting firms to compile and publish reports annually on the management and boards of directors of each company in the FAST index that would become the basis for the mini-boards’ voting of the proxies. This process should go a long way in curbing excess management and board compensation as well as corporate abuse without government interference or mandate.
As the old expression goes: “Sunlight is the Best Disinfectant.”
A Financial Plan
The FAST, when fully implemented, could provide the basis for a financial plan for middle and lower economic class Americans. The FAST not only deals with the retirement needs but also provides a legacy for the heirs of even the most modest income earner. This plan should give the U.S. the highest quality social safety-net program in the world.
We need to change from the “Culture of Debt” to a “Culture of Equity.” Borrow-and-spend is a failed policy that must be abandoned. Widespread ownership instead of debt will make United States citizens into stakeholders in the success and prosperity of America. The “democratization” of wealth will bring unity of purpose and solidarity instead of class warfare and strife.
Once again America can be the land of opportunity for all, and it can all be made possible because of the powerful funding mechanism that is completely independent of politicians and the government whereby benefits are increased and yet the debts are all paid.
Econometric model (Proof of Concept)
The current PFA econometric model is based on information contained in the CBO’s (Congressional Budget Office) June 2015 report.