Now, what the president has said is that there will be no changes in the benefits now for people born 1949 and before. So what that does is that gives us a certain window where we can say with some clarity what the fiscal effects would be. That covers a period of time in the near-term where we know there won't be appreciable changes in the benefit stream. And we also -- based on what we've outlined here -- have a fair ability to estimate the amount of money going into the personal accounts.
We can put those together and come up with a picture of how things will look as far as those specifications go. Looking out beyond that would require us to speculate about the nature of the choices made to fix the Social Security system, which we're leaving open for a discussion with Congress.
QUESTION: Putting those aside, what is the revenue implication of a fully phased-in 4 percent account of the type that you've laid out?
SENIOR ADMINISTRATION OFFICIAL: It would be very different depending overall on whether or not it was done alone or in the context of a comprehensive plan.
QUESTION: Assuming it's done alone, since that's all you're putting out here...
SENIOR ADMINISTRATION OFFICIAL: And the problem with assuming it's done alone is that we aren't advocating that it be done alone. We're advocating that it be done in the context of a comprehensive plan.
QUESTION: But people are going to want to know what is the cost.
QUESTION: But you're not saying what else is in there. You're not saying what else is in the comprehensive plan, so...
SENIOR ADMINISTRATION OFFICIAL: Well, when we have -- at the point where we can attach numbers to a comprehensive plan and model the effects of the accounts in that context, of course we'll put those numbers forward. But until that -- those specifications exist, we don't have the ability to project that.
QUESTION: In saying that there is no net added cost to the program, are you implying -- is it implicit that there is a benefit offset of one-third current guaranteed benefit because you're diverting one-third of revenues away from this program? If that's not correct, what would the benefit offset be to traditional benefits, and how would it be calculated?
SENIOR ADMINISTRATION OFFICIAL: The way that the election is put before the individual in a personal account structure of this type is that in return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system.
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a consequence of making that decision.
QUESTION: So he would only get a benefit to the extent that his portfolio performed in excess of 3 percent?
SENIOR ADMINISTRATION OFFICIAL: Right. You can think of it as saying -- if you were making a decision on where to put your money going forward over the next 10 years, and you're saying, should I put it in this account or that account, if you're choosing to put your money over here instead of over here, then the net effect on you, as an individual, is to compare what would be the rate of return you get from this system, as opposed to putting it over here. And that would be the difference between the two.
QUESTION: Short of 3 percent, would he make whole or would he get less than the current guaranteed benefit?
SENIOR ADMINISTRATION OFFICIAL: Well, there's a implication at the end of your question which -- you have to remember, the current system can't pay the current guaranteed benefit, so...
QUESTION: -- is to be paid through 2042 or 2052, the point -- are you suggesting that would not be paid?
SENIOR ADMINISTRATION OFFICIAL: Well, it's -- well, actually, it's -- I don't want to get off on too far of a tangent, but the Congressional Budget Office actually put out a paper this week which made a modification to what they had previously said about what current law was. And they made it very clear that current law is actually the level of benefits the current system can actually pay, as opposed to the level of benefits the current system is promising. So if you ask the question in terms of...
QUESTION: But they also said it can pay current level benefits until 2052 -- correct?
SENIOR ADMINISTRATION OFFICIAL: But the Congressional Budget Office is also very careful to say that starting in 2019 or 2020, the resources are not there to pay those benefits.
QUESTION: On the phase-in period, could you explain why you decided to begin the phase-in in 2009? And then, by the end of the 10-year window, what participational rate would you estimate of all eligible people would be using private accounts?
SENIOR ADMINISTRATION OFFICIAL: We work off of the actuaries' estimates for participation. And their intermediate estimate is to have two-thirds participation, two-thirds of all eligibles participate.
QUESTION: The 2009 phase-in, why did you choose that? That's four years...
SENIOR ADMINISTRATION OFFICIAL: We spent a lot of time going over the administrative aspects of setting up the accounts, and that seemed to us a realistic schedule for getting people into the accounts.
QUESTION: So people who don't -- people who choose not to take a personal account are not guaranteed the current schedule of benefits, they're...
SENIOR ADMINISTRATION OFFICIAL: Under the current system, they are definitely not.
QUESTION: And they're not under this...
SENIOR ADMINISTRATION OFFICIAL: Under no scenario are they -- could they be. Unless you posit a very large tax increase.
QUESTION: Is there an option for a opt-out after accounts grow to a certain point, where they could have a wider range of investment choices?
SENIOR ADMINISTRATION OFFICIAL: We're not specifying anything like that at this time. There's no discussion of anything like that in the specifics we're putting out today.
QUESTION: You said that there's a limitation on withdrawal at retirement, that they would have to take out enough to ensure themselves from combined with the regular system benefit and poverty level. What if there's insufficient funds in their personal accounts combined with the regular fund to give them a poverty-level income...
SENIOR ADMINISTRATION OFFICIAL: That is obviously a situation that faces people in the current system, as well. The limitation that we're putting is basically on those who have a total amount of money beyond that, so that they cannot, by spending down the personal account, place themselves into poverty as a consequence.
Obviously, if the overall benefit were below the poverty level, they would basically have to annuitize all of it and take it all as a monthly stream of benefits.
QUESTION: And if it was inadequate to provide that poverty level stream, what would happen? In other words, if there was not enough money if they annuitized it to produce and income stream that brought them to the poverty level, what would you do?
QUESTION: How would you make it up?
SENIOR ADMINISTRATION OFFICIAL: I'm not -- they would be in the same situation that a person is today who had a benefit that's below the poverty level.
QUESTION: So they just sink below the poverty level?
SENIOR ADMINISTRATION OFFICIAL: But the -- I'm not sure if I'm understanding your question.