Friday, April 22, 2005


Even More Costs for Social Security Privatization

I read a variety of technical magazines. Most of them arrive in my mailbox gratis, and I'm thankful. But, frankly, I skim through most of the articles. There are a few columns that I regularly read (John Dvorak, for one; also here) and an occasional article will keep my attention for a few minutes. But for the most part, it's a skim.

Except Baseline Magazine. It arrived in my mailbox several months ago without my asking for it. It's a publication that specializes in large-scale IT projects. The articles examine successes and failures. I've found it's worth reading. All of it. Every issue. It's great! And I've subscribed - again, free.

This month's issue includes an article that looks at the completely ignored question of planning and implementing the technology necessary for Social Security privatization. A few key paragraphs:
Indeed, a report commissioned by President Bush on ways to strengthen Social Security, released in December 2001, didn't mention information technology once.
Before you continue to read the remainder, think about that short paragraph: a report on strengthening Social Security didn't consider the implications of IT systems necessary to do so.
... "In politics, you often decide what to do and then ask how to do it," says Dallas Salisbury, CEO of think tank Employee Benefit Research Institute. "It's as if the question of how to do it is not being asked."

One thing is certain: Social Security reform would require heavy lifting on the IT side. And Bush has said he wants private accounts in place by 2009. Hitting that target is increasingly unlikely.

"If the SSA built a system [for tracking private accounts] itself, it would take at least three to five years to build," says Marcus Fedeli, manager of federal opportunity products at Input, a consulting firm. "That's conservative. It could take three years just to design the system."

... Today, SSA systems account for a limited number of data inputs.

Is the beneficiary alive? What's the age? Are there dependents? Is there a divorce?

Once those questions are answered, they are matched to rules and formulas, and a check is sent.

Private accounts introduce moving parts.

What percentage of funds will be invested in a private account? Did the allocation change this quarter? Should the accounts be paid in an annuity if below a set level or taken in a lump sum? This information would probably be collected quarterly.

And money needs to go to accounts faster.

Currently, it can take 18 months to reconcile individual contributions to Social Security, Salisbury says.

That lag applied to private accounts means you could miss an entire bull market.

"It's impossible to do what has to be done," says Francis Cavanaugh, the first executive director of the Federal Retirement Thrift Investment Board, which was the agency responsible for administering the Thrift Savings Plan for federal employees. His tenure ran from 1986 to 1994.

The Thrift Savings Plan is often cited as an example of how private accounts in Social Security could work. The plan is like a 401(k) for federal employees.

The catch? You can't compare the two programs because Social Security processes millions more transactions, Cavanaugh said.

... Even if a system could be designed to handle the private accounts of potentially all of the 159 million people covered by Social Security, managing all the account information would be a huge procedure, says Input's Fedeli.

Why? Much of that data arrives on paper forms. "You are talking stacks and stacks of paper. The principal challenge is collecting the information and then allocating the money," Salisbury says. "We assume the world is automated. It isn't."

Without an all-electronic system, processes could easily bog down.
The examples of bungled technology implementation and upgrade projects for various federal agencies go on almost endlessly. The FBI's electronic case filing system is one of the latest horror stories. But the sheer size of privatizing Social Security (and, by the way, handing over our personal information to a very large group of marketers) makes one take a step back.

It's not like the current SSA system. It's not like the DOD or federal employee systems. We can't compare an SSA privatization project against those because it's apples as compared to oranges. Those systems were built as those agencies built their own infrastructure over decades. And much of the infrastructure was put in place
incrementally because of the technology that became available.

Privatizing Social Security means building a very large system and putting in place it's attendant bureaucracy very quickly. It's a recipe for a disaster. It will result in delays, mistakes, and failures. You and I will pay for it through our taxes (and through our noses). You or I or my neighbor or your friend will lose many months of benefits because the system screwed up somehow in a completely unknown and untraceable way.

George Bush's pipe dream can't be stood up in just a few years. George and his crew are avoiding the hard questions in many ways, but this question isn't spoken in any conversation.

It won't happen. No matter how much political pressure Congress and the administration put on the fool that is willing to head up this organization, no matter how much money they throw at it. It won't happen.

When I was in the Navy, we often repeated a favorite saying:
"Piss-poor planning on your part does not constitute an emergency on my part."
There's absolutely no planning on this project. It needs to die a quick death and be promptly buried without ceremony.

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