AARP Profits Mightily From Private Accounts

Clearly another case of do as I say, not as I do. - Sailor

AARP Profits Mightily From Private Accounts

Adam DubitskySaturday, Feb. 12, 2005
NewsMax.com

For decades, they were the anointed ones, using their power to threaten all who would oppose them. The beneficiaries of an order that now lies in tatters, many of its leaders gone or on the run, unwilling to compromise in any way, these dead-enders have publicly vowed to fight to the last.
As the recent election attests, however, they are on the wrong side of history; voters overwhelmingly ignored their scare tactics and cast ballots for personal freedom and responsibility and against government control.


I am referring, of course, to the debate over private Social Security accounts.
Let's be clear: Opposition to the option of private Social Security accounts is driven by political and ideological self-interest, not economics. AARP, labor unions and politicians leading the attack against "risky" accounts favored by "Wall Street fat cats" wax sentimental about non-existent accounts, the sanctity of a make-believe lock box, and a Rockwellian bond created between workers and ... someone else's parents.

Yet when it comes to their own pension funds, employees' retirements and campaign war chests, they keep their money far from where their political mouths are: 225 miles away, on a street in lower Manhattan, to be exact.

Leading the anti-reform brigade is AARP, the largest and arguably the most powerful special interest group in Washington. United by the common love of discount hotel rooms, airline tickets and services, AARP's nearly 36 million members are now funding a massive effort to scare both themselves and the politicians they elect from making the very changes to the Depression-era federal retirement program that AARP and most other corporations have made with their own pension and retirement plans.

News reports have pegged AARP's initial advertising blitz at $5 million; one could also assume that a forest's worth of trees will be felled in the accompanying direct mail campaign. Before AARP members make up their minds about President Bush's proposed private account option, they may want to peruse another AARP document: its consolidated financial statement.

When it comes to its own finances and its employees' retirement security, AARP turns to Wall Street. In fact, the nonprofit even has its own "Wall Street" operation, a wholly owned for-profit subsidiary called AARP Financial Services. These "fat cats" manage and market dozens of mutual fund and financial services to AARP's 50-and-over membership.

According to the group's 2003 consolidated financial statement, AARP recognized a hefty $60,326,000 in investment income in 2003. A division of AARP also received more than $75 million in federal grants – that is, tax dollars – in '03. (Applying AARP's stated reason for opposing the President's tax cuts, these funds should have gone to shoring up Social Security rather than supporting a very rich and powerful organization.)

AARP concedes that "modest adjustments like we've always done in the past" are all that is needed to "keep Social Security solvent for coming generations." If Congress' past performance with "modest adjustments" is an indictor, we'd better hide our wallets. Since 1937, Congress has increased Social Security taxes 19 consecutive times and increased the level of income subject to OASDI taxes 37 consecutive times.

After "fixing" the exact same problem 56 times in a row, each repair more expensive than the last, why is AARP and half the Congress still trying to delude Americans that the system is fundamentally sound?

These modest adjustments have increased Social Security taxes from about 2 percent of the first $3,000 in income to 15.3 percent on the first $87,000 income. Taken together, a dozen or so minor adjustments over 75 years might qualify for modest. But 56 in a row? We are way beyond modest; the next exit on the left is insane.
While Social Security taxes have only increased, since 1930 the stock market, despite numerous corrections and recessions, has realized an average annual return of 9.4 percent. Which is precisely why AARP bets heavily on the stock market rather than the government. In 2003, less than 8 percent of AARP's $912,841,000 under investment was invested in government-backed securities.

Any politician, AARP warns, who tinkers with Social Security's current "defined benefit" structure by transitioning to a Wall Street-managed "defined contribution" system will be met with fierce opposition. The transition costs, they argue, will threaten the benefits of current retirees and soon-to-retire workers. I am not so sure; the AARP managed to pull it off.

In 1998, AARP began the transition from its defined benefit pension plan (such plans are crippling many of the nation's airlines, steel mills and factories) and began offering its younger workers the option of diverting a portion of their paychecks into private accounts. The full transition will take decades, as older AARP retirees and their spouses continue to receive benefits promised under the old system.
You may have heard something familiar from the well of the House of Representatives during the State of the Union Address.

Clearly, AARP believe its revamped retirement plan suits its younger workers, who are years away from retirement and can absorb market fluctuations. But what about AARP's members, all of whom are over 50 years of age? Surely the market is too risky for these older Americans? Think again.

AARP's Investment Program, managed principally by Scudder Investments, offers members of the nation's largest seniors group a mix of 38 well-managed funds, the vast majority of which are invested in stocks. The beauty of the AARP Investment Program is that its funds take the guesswork out of investing; members could print out a list of the funds found on AARP's Web site, tape it to a wall, throw a dart at it and be sure to hit a solid fund.

As a group, AARP's funds had an average return of 7.29 percent since 2000. Not too shabby, considering that within this same period the four horsemen of tech sector implosion, recession, scandal and terror roared through the U.S. economy. The naysayers who worry about what would happen if the economy soured on the eve of one's retirement might want to consider this fact.

In addition to AARP, other opponents of a private option, including labor unions, also turn to Wall Street to manage their retirement plans and investments. If you have a few moments, you might want to look at who is managing the campaign war chests of senators opposing private accounts ... it's not the federal government.
AARP describes itself as a "nonprofit, nonpartisan membership organization that helps people 50+ have independence, choice and control in ways that are beneficial and affordable to them and society as a whole." In reality, AARP often takes positions that are both self-contradictory and at political odds with most seniors. Its current member-supported fight against private accounts continues this unfortunate tradition.

There are thus two AARPs – one, an uberlobby woefully out of touch with the values of its membership, which takes the back of a shrinking band of politicians whose power is derived by fostering dependence on a distant federal government; the other, a sophisticated 21st century corporation providing valuable services for millions of older Americans, which entrusts its financial future to the capital markets.
It's time for AARP to live up to its credo and stop opposing the very system of private accounts that has served its members and employees so well.

This is not a solicitation to buy or sell securities. For that, visit http://aarp.scudder.com. Read any prospectus carefully before voting.

Adam Dubitsky, a Washington-based public affairs consultant, was a congressional appointee to the National Summit on Retirement Savings and Founder of the Fund for a New Generation.
He can be contacted at www.abdcommunications.com