Workers might end up paying more for the luxury of deciding how to invest their Social Security taxes, cautions Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School.
Ms. Mitchell studied social security systems in 49 countries and found that privately managed programs tend to have higher administrative costs than those run by the government. Administrative costs for the U.S. system are 0.7% of total Social Security expenditures, which is in the midrange of the 3% cost for programs in other developed nations and nearly 10 times less than the average for developing countries.
Administrative costs for pension plans, in comparison, tend to run a lot higher, Ms. Mitchell reports.
Thus, the administrative costs of running the U.S. Social Security system amount to only $15 per worker, while the costs of running the privatized system in Chile amount to about $30 per worker, Ms. Mitchell reports.
In contrast, the paperwork and administrative cost of U.S. corporate pension plans run between $130 and $150 per participant; public sector plans run up annual administrative costs of around $130 per participant, as well.
At the same time, the annual costs of defined contribution plans run around $34 per participant corporate plans and around $97 per participant for unionized plans.
However, workers participating in privately run Social Security systems are likely to be more satisfied overall, with opportunities to direct their assets into investments offering higher returns than government securities and the ability to get more information on performance of their investments.
