Social Security advisory panel splits over recommendations Saving, investment ideas create factions among 13


WASHINGTON -- After more than two years of work, a federal advisory panel studying Social Security has been unable to agree on how to find enough money to pay for the retirement of the baby boom generation.

The panel is divided into three factions, with six of the 13 members opposed to the most important change recommended by the others. That recommendation would replace part of Social Security with compulsory private savings that would be invested in stocks and bonds.

The disagreements foreshadow a major battle over proposals to reduce the federal guarantee of retirement benefits and supplement it with a new system of compulsory individual savings accounts.

The six opponents include three union representatives and Robert Ball, a former Social Security commissioner who has worked closely with Democrats in Congress for more than two decades.

Members of Ball's group said that they were distressed at the surge of interest in "privatizing" part of Social Security and that they had been chagrined to see their names associated with such proposals, which they regard as a betrayal of the "community solidarity" embodied in the program.

The panel, the Advisory Council on Social Security, was appointed in June 1994 by Donna Shalala, secretary of health and human services. Factions of six, five and two members have evolved. Each group has a plan for guaranteeing the solvency of Social Security over the next 75 years.

Several members said they had hoped that the panel would move toward a consensus that would emphasize the advantages of investing Social Security money in the stock market.

Instead, the members' disagreements have become sharper in recent months, said the chairman, Edward Gramlich, a professor of economics at the University of Michigan.

A confidential draft of the final report, to be issued this month, says, "The council has not only been unable to agree on a plan, we have been unable to agree on the proper criteria to use in assessing the plans."

In June, the Clinton administration said the money in the Social Security trust fund would increase for two decades, then start to decline. The administration said that the trust fund would be depleted in 2029, just as the last of the baby boomers reached 65, and that revenues would then cover only three-fourths of benefit costs.

Although the advisory council has been unable to agree on major changes in Social Security or its investment policies, a majority of members will endorse smaller steps that could extend the life of the trust fund to 2050 or beyond, a substantial achievement.

In the draft of the final report, Ball's faction says, "Social Security is not facing a crisis, but does face a long-term deficit, beginning about 30 years from now."

Members of the council agree that workers could get much higher rates of return if some of their retirement savings were invested in stocks rather than government securities, the only investment now allowed for the Social Security trust fund.

Five members of the council want to replace the Social Security program with a two-tier system of "personal security accounts." The government would pay a modest flat benefit, about half the average benefit now paid to retirees. Forty percent of payroll taxes would be diverted to the new accounts, and workers would decide how to invest the money.

Under that plan, retirement benefits would no longer be defined by law, with a standard formula, but would vary from worker to worker, depending on the success of each investment. People who made identical contributions could end up with radically different benefits.

But Ball's group spurned the proposal, saying it would substitute "an extraordinarily high degree of go-it-alone individualism" for the "community solidarity" of Social Security.

The third faction, composed of Gramlich and another panel member, also wants to establish mandatory individual savings accounts.

Under this proposal, the government would require each worker to make contributions, starting in 1998. The accounts would be owned by workers but managed by the government. The investment options, perhaps five to 10 mutual funds, would be much more limited than under Schieber's proposal.

Ball's group said both of those proposals were "inherently and fundamentally flawed."

Pub Date: 12/08/96

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