A Retirement Revamp in Works

President Bush’s new Social Security commission will mount an aggressive campaign to convince Americans that the retirement system can’t keep its promises to future generations unless it allows them to invest some of their own tax payments in personal mutual fund accounts.

Social Security “is structurally broken,” Richard Parsons, the commission’s co-chairman, said Monday at its first meeting. “It cannot work anymore in the way it is set up.”

Parsons directed committee staff to prepare a report by July 10 enumerating for the 16 commissioners what he termed the current system’s “infirmities.”

The commission’s goal by the fall is to have a detailed plan to redeem one of Bush’s key campaign promises and allow younger workers to open personal accounts.

The panel’s first step, Parsons and other commissioners said, will be to explain to the public that the current system will collapse in about 35 years under the weight of the baby boom generation’s retirement.

People have an “inchoate sense there is a problem, but they do not understand its dimensions,” Parsons, chief operating officer of AOL Time Warner, said at a news conference.

The group of eight Republicans and eight Democrats is venturing into a political minefield. While the commission took a lunch break Monday, a coalition of groups strongly opposed to privatization held a news conference nearby to denounce the commission and the president.

The AFL-CIO, Urban League and other organizations insist that the current system can be maintained with only minor tinkering, and they threatened to make any commission proposals a hot issue during the 2002 congressional election campaign.

“Mr. President, whose benefits will you cut and by how much?” asked Linda Chavez-Thompson, executive vice president of the AFL-CIO.

In creating the commission, the president set certain rules: no reduction in benefits for workers already retired or those nearing retirement. No increases in the Social Security payroll tax (now 6.2% on workers, matched by employers, on income up to $80,400 a year). No tinkering with benefits to disabled workers and their families. And no compromise on offering voluntary personal accounts.

These accounts should be called the plan’s “ownership component,” said former Sen. Daniel Patrick Moynihan (D-N.Y.), the commission’s other co-chairman. He said he did not like the term “privatization.”

Millions of people who had feared selecting individual stocks are happy to buy mutual funds, Moynihan said. “Professors, teachers, nurses” all participate successfully in the world of investments, he said.

Members of the Commission to Strengthen Social Security share the president’s belief that voluntary personal accounts could give people a chance to accumulate more money for retirement, in addition to the benefits they will receive from Social Security.

Currently, the taxes paid by 140 million workers finance monthly benefit checks for 44 million recipients. Under Moynihan’s “ownership component,” younger workers could instead invest some of their tax payments in mutual funds in hopes of building up savings faster than they grow otherwise. But this money would not be available to pay current retirees’ benefits, as most of it is used now.

For now, the program is running an annual surplus, which is invested in special issues of Treasury securities.

In 2016, by current estimates, the benefit payments will exceed payroll taxes, and the system will begin drawing on its portfolio of Treasury securities to make full benefit payments.

All of the bonds are expected to be cashed by 2038. Without the surplus, payroll taxes will be able to pay only 72% of benefits promised by current law.