José Piñera's Mission to Reform Social Security

By Eric Simons*

As an investment advisor, I attended DATAlynx's February 2004 conference in Denver. It was the best business trip of my 23 year career.

DATAlynx is a department of First Trust, who in turn is part of publicly-traded Fiserv (symbol: "FISV"). Fiserv plans to become "the world's premier financial services provider" (they follow only the Federal Reserve Bank in US check-processing). DATAlynx is one of the big four RIA custodians along with Schwab, Fidelity and TD Waterhouse. But being "institutional only", they do not compete with advisors and indeed, are specifically set up for advisors who are also brokers, allowing easy compliance access.

One of the conference highlights was José Piñera's keynote address. Sr. Piñera studied Chicago economics and then went to Harvard for a Ph.D. He is a very intelligent, endearing, articulate, humorous, polite, unassuming, entertaining man. He has an innate ability to reduce concepts to their lowest common denominator and explain them in layperson's terms with humor and visuals, thereby easily expressing his points.

At age 30 in 1978, he was invited to become Secretary of Labor & Social Security of his country, Chile. He had specific ideas on how to reform Social Security and propel the economy. With youth, trepidation, political ignorance, but smarts and passion, he did it. Facing Cabinet resistance, he went to the people with his proposal. For three minutes each week, he spread his vision on television. To assure brevity, he brought an egg timer. He explained concepts: systematic saving starting young, compounding and diversification. He assured those already collecting that they would be protected by issuing government certificates.

Using their payroll tax, employees would contribute 10% of their pay to private asset-allocated accounts. Workers would accumulate real wealth in a personal retirement account and be able to comfortably retire, the economy would grow due to increase in savings for retirement (this is a fully funded system) and the nation's standard of living would rise. People could retire any time they wish, with their own money (they can save up to 20% of their wages, tax free, if they want to retire early), so long as their accounts could purchase a life annuity at least equal to 50% of their wages, protecting government & society from having to subsidize irresponsible people.

His plan afforded transparency as to true pay and the source of contributed funds (as opposed to the concept of employer/employee contributions which in actuality are from the employee's pocket). It afforded efficient, private sector administration, capitalistic, competitive, global equities which perform strongly over a lifetime and a smaller government role as regulator versus manager & administrator. Social Security is government's largest outflow, so isn't efficiency paramount?

Sr. Piñera pointed out that FDR didn't create the Social Security concept (Chancellor Otto von Bismarck did in 19th century Prussia), and that a system of personal retirement accounts is more compatible with the American values of individual responsibility and self reliance.

He showed how the standard of living in Chile has markedly improved and an accepted, simple, effective, understandable, responsible, non-political program is successfully operated and is safe from politicians.

Now, as part of his personal mission to reform Social Security and empower workers with real capital, Jose Piñera is invited to share his ideas and experiences with Presidents and Prime Ministers all around the world. He has successfully helped 16 countries on three continents start similar systems (visit his

When he met with Alan Greenspan, Mr. Greenspan was impressed enough that he requested a look at Piñera's passbook to see what kind of statement was generated; when so consumed by conversation, he put it in his pocket and left with it.

When met with US political resistance, Jose Piñera reminds them of our heritage: "Aren't you the country that created the most revolutionary concept of freedom in history, the Declaration of Independence?"

[* Eric Simons can be contacted at].



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