A BLUE ribbon group studying Social Security is looking more closely at shifting some of the system's assets into the U.S. stock market, recent news reports have indicated.
It's easy to see why. In the past 70 years, stocks have gained more than three times as much in value as U.S. Treasury securities, which are the current investment vehicle for the Social Security trust fund. For an organization projected to go deeply into the red after the baby boom generation starts retiring, stocks look tempting.
But the idea is controversial. Some fear the effect of the government having an ownership stake in U.S. companies. Some think stocks might not do as well in the future.
What about implementation? Should the Social Security trust fund itself buy stocks? Or should it disburse assets to taxpayers in "private savings accounts" that they could invest as wished? And what effect would the infusion have on an already inflated stock market?
National Committee to Preserve Social Security and Medicare
We are opposed to the idea of individual accounts -- reducing the payroll tax and giving workers the money and having them go ahead and invest it on their own. Politically, the Social Security program is strong because it includes virtually everybody. Introducing individual accounts would be the beginning of a way to chop it up, and eventually if it keeps going there just won't be the support to maintain it.
At the same time, there are 80 million Americans who have never invested in anything. If you gave them the money and told them, "Good luck," I think we'd be back in another bailout situation.
But if you maintain control with a board of trustees, and the board wants to take some of the surplus and invest it in something other than Treasury bills -- that has a certain amount of appeal. We could get better returns. And if you can get a better return and minimize the risks at the same time, it would avoid some of the more drastic proposals on Social Security -- benefit reductions, cost-of-living reductions and so forth.
Victory Value Fund, Cleveland
I guess I can see the rationalization for it because we have encouraged people to invest their retirement funds in the market. But my contrarian streak says, "Oh! Top of the market."
I think it is a good idea, but I'm afraid, like anything else, that it should be phased in over time rather than all at once. That could really throw a loop into the market. I like a healthy market, and I think that in a very short time horizon, it would be unhealthy. Too many sweets aren't good for you.
There shouldn't be any big rush to get it invested. It's a lot of capital for these markets to absorb. It could be inflationary. It would just seem like companies would have so much more to invest that they would probably put it back in their structures, plant and equipment.
National Academy of Social Insurance
One proposal would really keep the system with the same basic structure, and the only involvement with the stock market would be to alter the kinds of investments that trustees can use for the reserves. There's another group on the council that is recommending what they're calling personal savings accounts for part of Social Security.
Those really pose a host of difficult questions. Would it be mandatory? If this is a retirement system, should we allow people to take out money before retirement age?
There are also many questions about how one would organize such a system. Would employers be required to set up these accounts? Or would it be done by the government? The personal security account plans are very much in the idea stage, and they are very intriguing ideas. But there is a lot of thinking through that needs to be done to analyze the choices available.
HR&A; Policy Simulation Group
It's obvious to see why they would start thinking about this, because otherwise you either have to cut benefits or raise taxes. And neither are very popular.
The biggest issues have to do with the risks that would be imposed on the population by different Social Security plans -- including continuing the current system. The likely demographic and economic future makes the current program not viable, so there's a risk to the working-age people who are funding it.
The good news about the current program is that there's no inflation risk and no risk that you can outlive your benefit.
With the individual account proposals, there's a different pattern of risk. If that happens, people will have all kinds of financial risks about what asset returns would be, what inflation would be, and longevity risk.
But I think the Social Security debate is just starting.
Pub Date: 8/04/96