QUESTION: Right now, the benefit, guaranteed benefit would be above the poverty level, wouldn't it?
SENIOR ADMINISTRATION OFFICIAL: No. Many people are actually below the poverty level.
QUESTION: Who are receiving Social Security?
SENIOR ADMINISTRATION OFFICIAL: Yes.
QUESTION: Let me try to ask a previous question a different way, that seems to me to be separate than any benefit cuts. In what year would the personal accounts make back enough money to make up for the money that was borrowed to set them up?
SENIOR ADMINISTRATION OFFICIAL: I don't have a precise answer to that. Obviously, if you think about it in the case of a particular individual...
QUESTION: I'm not asking about a particular individual, I'm asking about the whole cost -- and if you can't give a precise year, how about an approximate year -- when would the money be made back with these personal accounts? They're going to generate income; when would they make back enough money to make up what you borrow?
SENIOR ADMINISTRATION OFFICIAL: Well, at the instant you create the accounts you are creating a reduction in the government's unfunded obligation. So from the moment the investment occurs in the account, there's a neutrality in the government's overall fiscal position. So it's not something that's sort of hypothetical or distant in that sense. Basically, you're making an off-setting reduction in the government's obligations going forward that is equivalent...
QUESTION: There's a time lag between those.
SENIOR ADMINISTRATION OFFICIAL: Well, but -- no, there isn't, though. There is a time lag in the cash flow, but in the net indebtedness of the federal government. If the question is, what is the overall impact on the government's debt situation, that would be neutral from the point of enactment.
QUESTION: No, I'm wondering -- the money that needs to be borrowed initially to seed these accounts, when does that get made back by the earnings that the people experience from accounts?
SENIOR ADMINISTRATION OFFICIAL: The earnings that people experience from accounts is not a part of the equation because the earnings in the accounts are not seen by the government after they accrue. So I'm not...
QUESTION: When do you make up the $664 billion?
QUESTION: When would you make up the borrowed...
SENIOR ADMINISTRATION OFFICIAL: That's really a function of the overall plan. I mean, you have to model -- in order to know that, you have to model it in the context of an overall plan to fix the system's finances. I mean, all of these plans have different cash flow effects, and the timing of them changes from plan to plan. And you can't really answer that in the abstract without knowing how it functions within the context of an overall plan to fix the system.
QUESTION: Could I ask about the thrift savings plan? First of all, do I understand it that right now the thrift savings plan functions as an add-on; you, or members of Congress, get their Social Security benefits when they retire, and then they get whatever they earn in their accounts -- is that right?
SENIOR ADMINISTRATION OFFICIAL: That's right.
QUESTION: I want to understand this poverty line protection. I have to buy an annuity such that I won't fall below the poverty line with just my annuity; or my annuity and my Social Security; or my annuity and my Social Security, and my 401(k) and anything else?
SENIOR ADMINISTRATION OFFICIAL: It's just your traditional Social Security and the Social Security personal account.
QUESTION: Okay, then one other question in that regard. The Social Security Administration developed a lot of their figures around their median worker. One of the things that has been very appealing about this account, I think, that the president has pushed is the issue that you would have something to pass on to your heirs. Have you done any runs that suggest how much of the median worker who works a 20-year career at $34,000, whatever, or a 40-year career, would have left after he or she buys the annuity? Or would it be all gone, to by an annuity to ensure that...
SENIOR ADMINISTRATION OFFICIAL: The best way to answer that is to say there has been analysis done of plans that use this type of structure. For example, SSA did an analysis of the Lindsey Graham proposal that basically produced projections on what were the typical bequests that could be left in particular years, and what proportion of the benefit would have to be taken as an annuity, and what proportion could be passed on. Obviously, we're not in the same position to be able to do that here because we don't have a comprehensive plan to model.
But there have been analyses that have been done on those, including on some of the commission models, as well. And I think what they generally show is that the limitation that I described before strikes a pretty fair balance between making sure that people have enough to make sure that if they live a long time, that they are protected from poverty going forward. But for those populations where they die earlier, they have an opportunity where not so much has been annuitized they can leave a substantial bequest.
QUESTION: Can I just -- can I interrupt? I'd like to ask a couple questions that are sort of along the lines that were just being asked. The first is, and maybe I'm just missing something, but is there a requirement for annuitization of some minimum amount on your -- the portfolio at some point?
SENIOR ADMINISTRATION OFFICIAL: There -- it would -- I want to be careful in how I define this because this is another one of those things that its effects could change according to the specifics of the overall plan to fix Social Security. But the requirement applies to the personal accounts to the extent that the combination of the personal account income and the traditional system would need to be put together to get you to the poverty level. Now, obviously, if you were -- if you already had enough in your traditional benefit to keep you above the poverty level, then you wouldn't have to worry about that. You could take out your money and spend it much more freely.
Many proposals out there actually increase the progressivity of the basis Social Security benefit. And so the consequence of a plan like that would be that people would not actually be obligated to annuitize that much of their personal account because a lot of that job would be done by the traditional system. If you had a plan, for example, that didn't do that, but balanced the system perhaps in a less progressive way, you might have people required to annuitize more of their personal account in order to reach that requirement. So it really depends on the specific design of the plan.
QUESTION: So, in some circumstances, people will have annuitize, literally buy an annuity somewhere?
SENIOR ADMINISTRATION OFFICIAL: Right. We think it's very important that people not be in a position where their personal account money is withdrawn and it have the effect of pushing people into poverty.
QUESTION: The other thing is, how are you going to treat inheritability? Are you going -- I know that's a complicated question, but can you just go over that quickly?
SENIOR ADMINISTRATION OFFICIAL: Well, we certainly are providing for inheritability. We specifically say that the money that is not annuitized can be left as an inheritance.
QUESTION: Just to clarify on one of the last points that you made. So if you annuitized at poverty level, and then you die early, does that money then go back to the federal government, they wouldn't be private annuities? And, also, just to follow up on one other thing, to make sure I understand -- the president's model two plan did provide for a very generous low-wage, above poverty level benefit. I don't know if you're prepared to say that the president is still supporting that. But if that were to take place, then that would mean millions and millions of low-wage workers, that various low-wage workers would not have to annuitize at all -- am I correct about that?
SENIOR ADMINISTRATION OFFICIAL: Well, not necessarily, because remember, there is the benefit offset for taking the account. So they might -- if they had taken the account, maybe they're starting out above, and then have to take the benefit offset for the account, and then they wind up having to annuitize that portion of the personal account that applies to that offset.
But you're right, I mean, if there is a provision like that, that actually gets people closer to the poverty line after that offset is applied, then you would have a situation where people would not have to annuitize as much of their personal account as someone might think.
QUESTION: But at death, what happens to the annuity? Does it go to the federal government?
SENIOR ADMINISTRATION OFFICIAL: The annuity part would not come back, obviously, but the rest could be inherited.
QUESTION: But it goes to the federal government. In other words, there were some people talking about insurance companies would provide these annuities or the private sector...
SENIOR ADMINISTRATION OFFICIAL: Well, basically, the way that we have outlined it, the federal government would do the purchasing of the annuity contracts, so it would still be sort of -- this would still be channeled through the federal government, the purchase of the annuity. People wouldn't be out there shopping on their own for a private sector annuity.
QUESTION: But if you bought it from an insurance company then, the insurance company would take the risk, but they would also get the account if somebody died early -- right? I mean, that's how it works?
SENIOR ADMINISTRATION OFFICIAL: Yes, exactly. And here in a sense, the federal government is sort of the intermediary in who is shouldering that risk. I mean, they're basically sort of making a collective purchase of annuities as -- but, obviously, the same economics apply, that if you buy an annuity and die early, obviously, that limits the amount that you've been able to pass on.
