DALLAS -- The White House Conference on Social Security, which was held this week, was President Clinton's attempt to draw attention to the fact that our nation's retirement system is troubled.
However, most people know that. According to a recent survey of 2,008 adults conducted by Princeton Survey Research Associates and funded by the Pew Charitable Trust:
49 percent of all Americans believe the Social Security system is "headed for major financial trouble."
Some 58 percent say "big changes will be needed to correct the problems."
The survey also found that the majority of Americans oppose raising payroll taxes, cutting benefits or raising the retirement age as solutions to Social Security's problems.
Fortunately, many Social Security reformers are beginning to coalesce around several principles that must be incorporated in any successful reform legislation -- principles meant to protect seniors and ensure the retirement savings of all Americans for generations to come.
Guarantee benefits to current retirees. Because they have counted on the existing Social Security system and incorporated it into their retirement planning, current retirees and those nearing retirement should be guaranteed the benefits they were promised.
Give workers a choice between the public system and a private plan. People working and paying taxes into the system should have the option of remaining in Social Security or moving to a private plan.
Those choosing the private plan would deposit a part of their Social Security payroll taxes -- 12.4 percent of payroll -- into a private savings account. Workers would choose between a number of federally approved, closely regulated funds that would invest the money.
Require investment funds to maintain diverse portfolios. To ensure that private accounts grow enough to pay minimum benefits in retirement and that workers' contributions are financially secure, private plans must hold diversified portfolios. Workers would not choose among individual securities or be allowed to make highly speculative investments.
Give workers credit for Social Security taxes already paid. Current workers who choose the private option should receive full or partial credit for the money they have already contributed to the Social Security system.
Make contributions mandatory. The traditional argument for compulsory Social Security is that if contributions were optional some people would spend all of their income during their working years and be dependent on the rest of society during retirement. Whether or not this argument is valid, contributions to either the public or private system should be mandatory -- at least during the transition.
Include life and disability benefits in private plans. In addition to retirement income, Social Security provides disability income for individuals who are injured and cannot work, as well as a death benefit and survivors' benefits for widows and widowers age 60 or older and children under 18. Those who choose the private option should be required to purchase life and disability insurance as part of their plan. Participating insurers would have accept all applicants.
Protect spouses. Deposits to the private accounts should be divided equally between husband and wife at the time they are made. In case of death, the surviving spouse would gain control over both accounts. In case of divorce, each spouse would retain his or her account.
Require retirees to purchase minimum-income annuities. To ensure that retirees do not deplete their retirement funds too quickly, individuals should be required to purchase an annuity at retirement that would pay a fixed monthly amount -- say, 60 percent of their pre-retirement income -- for the rest of their lives. Funds above the amount needed to purchase the annuity would not be restricted.
Guarantee that private account holders don't lose. While there is every reason to believe that all workers would be better off, government should guarantee that no one will be worse off for having opted out of the public system.
Call for legislation
Given Social Security's shaky financial status and the baby boomers' impending retirement, the question is not whether to reform Social Security, but how. Legislation that includes these basic principles -- many of which have already been tested in other countries -- would solve the financing problems while ensuring the safety and solvency of seniors' retirement accounts.
Merrill Matthews Jr. is vice president of domestic policy at the National Center for Policy Analysis, a nonpartisan, nonprofit research institute based in Dallas.
Pub Date: 12/10/98