Problem: How do you increase the size of one leg of a three-legged stool without upsetting the sitter?

Economic engineers at this week's plenary session of the President's Commission on Pension Policy grappled with the difficulties of restructuring the present tripartite system based on private pensions, Social Security and personal savings. The commission is expected to come up with a comprehensive plan in two years to provide retirement income that is adequate, equitable and financially feasible.

William M. Agee, chairman of the Bendix Corp., advocated abolishing Social Security for those who have "high incomes throughout their working lives, followed after retirement by relatively lucrative, privately sponsored pensions." Social Security would be only for the poor, in other words.

He also suggested eliminating Social Security benefits for persons under 35 "while alternate proposals are studied." Although many Americans below that age already have a substantial investment in Social Security, Agee claimed that, as things now stand, their investment guarantees them nothing.

Despite a reordering of Social Security contributions two years ago with the resultant increase in the taxable base, high inflation once again threatens to leave the fund short of money within less than a decade. Hence planners are faced with the alternatives of continuing the present system with ever-increasing payroll taxes or redesigning it.

Agee, who describes himself as a lay economist, said continuing the present situation would have a "destructive impact" upon the nation's rate of saving, capital formation, productivity and employment.

The nation is experiencing "a vicious cycle where higher benefit requirements trigger higher taxes in the form of higher-percentage wage deductions, which increase pressures for higher incomes in order to maintain real wages and purchasing power," he told the commission. "This, in turn, fuels inflation, which then activates demands for yet greater benefits."

Moreover, he foresees that by the year 2020, when workers of the post-World War II baby boom have left the work force, there will be only two workers to support each retiree. "At that point, young and old will be pitted against one another in a fearful battle to divide the remains of a shrinking economy," Agee said.Likening the struggle to the Civil War, he continued, "Instead of region against region, it would be generation against generation; instead of brother against brother, it would be parent against child."

Besides phasing out Social Security except for the needy, Agee proposed developing tax incentives for savings modeled after the Individual Retirement Account, eliminating disincentives for the elderly to work and gradually increasing the retirement age.

Finally, Agee added his voice to calls for taxing Social Security benefits in the same manner as other pension income. While reducing Treasury outlays and therefore inflation, such a tax would not prove regressive because those with the least income would pay the least tax, he concluded.

The business executive's argument in favor of leaving pensions more up to the private sector was disputed by Alicia H. Munnell, a vice president of the Federal Reserve Bank of Boston. The private sector is no panacea because it covers only the top half of the work force and is incapable of protecting workers from inflation or those who change jobs frequently, she told the commission.