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The Takeaway: Cain Wants Chilean-Style Private Pensions in U.S.; Long-Term Care Insurance Program DOA
Posted By Elizabeth Nolan Brown On October 17, 2011 @ 8:26 am In Bulletin Today | Comments Disabled
Cain Plan Calls For Private Pensions: Republican presidential candidate Herman Cain is touting an alternative to Social Security based on the private retirement account model used in Chile. While fellow GOP hopefuls Mitt Romney and Rick Perry have been busy slamming one another’s plans for dealing with Social Security yet remaining vague about their own ideas, Cain is at least showing some leadership on the issue of retirement security. But is a Chilean-style private pension model feasible-or desirable-in the United States?
I believe in the Chilean model,” Cain said in a GOP debate Sept. 7. “Chile had a broken system the way we did 30 years ago. A worker was paying 28 cents on a dollar into a broken system. They finally awakened and put in a system where the younger workers could have a choice … Give them a choice with an account with their name on it and over time we would eliminate the current broken system that we have.”
In Chile, the Associated Press reports, all workers contribute 10 percent of their salaries to private pension plans; contributions are mandatory. Before this system was launched in 1981, workers were paying nearly a third of their incomes into a Social Security-like system that was going bankrupt. Now, all new employees must contribute 10 percent of their first $33,360 in yearly income to one of five private investment funds (ranging from safe bonds to riskier stocks). Women can begin taking their pensions-which are considered the private property of each Chilean-at age 60, men at 65. They can take the money in installments, or all at once, and anything leftover upon their death can be inherited by family members.
However-concerns about leaving retirement savings vulnerable to the stock market aside-such a plan would be ‘impossible’ for the United States, said Alejandro Micco, former chief economist with Chile’s finance ministry, in Bloomberg Businessweek. To change from a system like Social Security to a private pension system “you either need to have a very big fiscal surplus to pay retirees without income from workers, or go into debt.”
No CLASS: The Obama administration has decided that one part of the health care reform law, a long-term care insurance program known as the CLASS Act (Community Living Assistance Services and Support), will be too expensive and difficult to implement. The Department of Health and Human Services said Friday that it was ditching the plan, which would have set up a voluntary, long-term care insurance program for Americans. HHS Secretary Kathleen Sebelius said there was no way to make the program financially feasible at this time.
“We’re disappointed that the Secretary has prematurely stated she does not see a path forward to properly implement CLASS,” said AARP’s Joyce A. Rogers, Senior Vice President for Government Affairs. “In fact, the CLASS actuarial report established that CLASS can still be designed to be a ‘value proposition,’ although development work still needs to be done. We urge the Administration to continue dialogue and development of a viable path forward.”
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