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Social Security

Panel Proposes Fixes for Social Security System

By Albert B. Crenshaw
Washington Post Staff Writer
Wednesday, May 20, 1998; Page A09

A panel of business leaders, academics and members of Congress has proposed a rescue of the ailing Social Security system using a combination of personal investment accounts and increased retirement age. The group said yesterday that the plan would ensure the system's solvency for 70 years without a tax increase.

Under the proposal, which would apply only to people under age 55, 2 percentage points of the 12.4 percent Social Security payroll tax would be allocated to an investment account in the name of each worker. That account, the property of the worker, would be invested in a stock or bond index fund modeled on the Federal Thrift Savings Plan for government employees.

The plan "would make every American a saver/investor, and that ought to raise the consciousness" of the nation about the need for savings and financial understanding, said Donald B. Marron, chairman and chief executive of Paine Webber Group Inc. and one of six co-chairmen of the panel.

The private group, known as the National Commission on Retirement Policy, was convened by the Center for Strategic and International Studies here. It spent 15 months studying Social Security and other retirement and savings issues.

The plan will be offered as legislation by a bipartisan quartet of lawmakers – a Democrat and a Republican from each chamber. But the political prospects are still very dicey, despite pledges by both Republicans leaders and the Clinton administration that something must be done to prevent the Social Security system from going bankrupt 25 years from now.

Many of the group's conclusions are similar to proposals made by others, especially conservative groups. Some argue that Social Security is a poor investment for taxpayers and believe payroll taxes should be invested to offer potentially greater returns.

But the proposal quickly came under fire. Rep. Jerrold Nadler (D-N.Y.) said Social Security's problems are not so severe as to warrant "this kind of drastic action."

Under the plan, everyone would still be guaranteed a Social Security check in addition to whatever is in their private account. That benefit would be adequate to ensure that no one who works 40 years would retire with an income below the federal poverty level – something not currently promised by Social Security.

But depending on how well personal investments perform, some people could end up with less retirement income than they would have received under the current Social Security system – and some people with much more.

Key features of the plan include:

Raising the age of eligibility for full benefits to 70 for people born after 1969, and the early-retirement age at which partial benefits are available to age 65 for those born after 1952.

Allowing workers to contribute an extra $2,000 a year to their personal accounts to boost their personal savings accounts.

Reducing the consumer price index adjustments by half a percentage point, curbing the upward adjustment of benefits.

Adding the 7.5 million state and city government workers not now covered by Social Security.

© Copyright 1998 The Washington Post Company

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