Opting Out by State: Oregon Proposes Its Own Plan

In May 1997, the Oregon Legislature approved a resolution urging Congress to grant waivers to let states opt out of the federal Social Security system and design their own retirement plans for all workers, government and private. The resolution was based on a study produced by the Cascade Policy Institute, an Oregon-based free-market research organization. Author Randall Pozdena also proposed an alternative retirement system for Oregon, if Congress granted a waiver. Key features of his plan include

  • Funding the transition to a private system by requiring employers to continue paying their 5.26 percent share of Social Security taxes for another 20 years;

  • Requiring workers to contribute their 5.26 percent share of Social Security payroll taxes into qualified investment plans of their choosing;

  • Shifting workers born after a certain date (perhaps 1955) from the federal Social Security system to the new state-based plan; and

  • Continuing retirement benefits to current Oregon retirees equal to their benefits plus inflation adjustments.

The predicted results of the Oregon plan would be that over a 20-year period the existing system would be phased out and all new retirees would be receiving improved benefits as a result of superior investment returns. These predictions are based on the fact that no 20-year period since 1800 has witnessed overall negative investment returns, despite short-term cycles and disruptions.

In May 1998, Colorado also adopted an opt-out resolution and Arizona, Indiana, Missouri, New Hampshire, South Carolina, and Washington are considering similar measures. See Appendix B on page 19 for the full text of Oregon’s original resolution.