Government inefficiency should irritate all Americans
Love 'em or hate 'em, the DOGE team is definitely opening eyes on the operational conundrum of the federal government. As some of the operational data comes out, some of the questions I've mused about over the years are getting at least partially answered.
Putting all the political hot potatoes aside, just looking at the government for what it truly is, a monopolistic service provider, and then applying some reasonable frames of reference to the service model, it's abundantly clear. Government is expensive, in more ways than one.
In our practice we obviously work with retirees, lots and lots of retirees. We work with retirees from the steel industry, we work with retirees from the oil industry, we work with retirees from local utility companies, retirees from every trade union around, retirees from both Indiana and Illinois schools and local governments, and yes, we work with many retirees from the federal government as well.
Each of these different types of employers have divergent benefits packages, and either active pensions or pensions that have been converted to cash balance benefits. The benefit packages from these various types of employers are all slightly different with unique processes and benefit timelines. Our team understands all of them.
For example, for a steel industry retiree with a pension benefit available as either a lump sum or a lifetime income and a 401(k) plan, we can help get benefits started and balances consolidated within four to six weeks. The same applies to union pensions and state pensions, it's a little faster for the oil industry and utility companies. Bottom line is, implementing on a retiree income plan usually takes a little over a month.
Except for our federal employee retirees. Most currently working federal employees participate in the FERS retirement system (of course it's an acronym), which pays a lifetime income to the retiree and a reduced spousal benefit for surviving spouses. So, how long do we typically plan for the delayed onset of the FERS retirement income payments? The answer is six to nine months. Six to nine months of no pension income payments for the new retiree. So long that part of the planning for a federal retirement is addressing how the retiree is going to make ends meet while waiting for their pension to start. Not acceptable.
I always wondered why it took the federal government so long to process a retirement benefits application compared to other employers. Now, thanks to the DOGE, we have an answer. According to the DOGE findings, the beleaguered people working to process federal benefits applications for their other agency co-workers are working at the bottom of a mine shaft in Pennsylvania, processing the paperwork by hand, with a pace limited by the speed of the mine shaft's ancient elevator. Apparently, the pace is six to nine months. As someone who sees the impact of this inept system firsthand on my clients, this irritates me. It should irritate all Americans.
On to my next point of government agitation. Two weeks ago, I wrote about the Social Security Fairness Act, and how those who believe they are due a benefits adjustment under the new law could engage the Social Security Administration (SSA) to get the process started. I didn't make up the instructions, I found the tip in information released by the SSA.
Almost immediately after the column was printed, I began receiving emails about the process not working. These emails coincided with DOGE postings about the administrative costs of the SSA program itself, which provided a simple frame of reference.
According to information from the SSA, in 2025 Social Security is expected to pay $1.6 trillion in benefits to 69 million Americans. These are huge numbers, and the operations cost to administer these benefits is $15.4 billion, which is about a 0.96% program expense ratio. For someone who runs a wealth management business, this seems a little high, but reasonable, until we find a comparison.
The largest provider of retirement plan services in the U.S. is Fidelity. Fidelity also offers financial products and financial advice along with its core retirement plan business. As of September last year, Fidelity administered $15 trillion, and managed $5.8 trillion. Certainly, a reasonable comparison.
So, how much is the operating budget of Fidelity? According to the 2024 annual report, $10.2 billion, 32% less. But here's the rub -- while this private sector peer had lower operating costs, it also had more employees to serve customers, at 77,000 to 58,000 for SSA. And the real rub: when my team calls Fidelity to process a retirement, they actually answer the phone and typically provide immediate results. Not the case with the government program.
Let's put politics aside. These aren't political issues. Even those who don't like the President and the DOGE process should agree that Americans deserve more from our government. Even a crazy libertarian like me understands we need government, we just need it to be more effective, more efficient and more responsive to the people who need it most, and our retirees are at the top of that list.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
