President Bush briefly discussed one of the most important issues facing Americans: Social Security reform. Now that campaigning for the 2004
elections is under way, we'll probably hear a lot about why the Social Security system should be revamped to include individual accounts invested in
stocks and bonds. Opponents of reform have already played their cards; they argue it's impossible to manage 140 million personal accounts, let alone
cost-effectively. They're wrong and here's why.
At Level 1, a worker's employer sends payroll taxes to the U.S. Treasury. The employer tells Treasury how much of the total payment is from employees
who have chosen the personal retirement account option. Treasury then transfers that portion to a private-sector custodian bank, which then invests
the total amount in a money market fund which is always priced at one dollar, a standard industry convention.
Level 2,The following year, when the contribution is reconciled to the individual's name using the W-2 form, the fund's shares are distributed to
each worker representing his contributions and interest credit. He then transfers his Level 1 assets to one of three balanced funds, each highly
diversified and invested in thousands of securities.
One of the Level 2 balanced funds would be comprised of assets that approximate the portfolio construction of successful corporate defined benefit
plans. Such plans usually have stocks and bonds in a 60-40 percent weight, respectively. This fund is the default portfolio, where one is invested if
no choice is made.
The two other funds would have the same asset classes but with different weights. For younger workers, one fund with a higher concentration of stocks
would be created, and another, more geared toward less-volatile bonds for those near retirement. Although workers could choose any of the three funds,
the funds themselves are designed for differing ages.
After three years or so, when Level 2 has accumulated significant assets and economies of scale, each worker could elect to transfer assets from Level
2 to Level 3. This level would be more like the retail financial services environment. Although portfolio composition would be comparable to the funds
in Level 2, there would be less-restrictive investment guidelines.
The institutions and providers at Level 3 may want to offer additional goods and services, such as retirement planning software, to attract assets
from Level 2. Each worker could allocate his assets at will among Level 3 providers. This would ensure stiff competition as each provider strives to
meet investors' needs. Costs would most likely be greater than at Level 2, but they would be incurred only if an individual chose to shift to Level
Workers could also move some or all of their Level 3 assets back to Level 2, a platform with fewer features, but also lower costs. The competition
across Level 3 providers, and between Levels 2 and 3 would ensure workers receive the greatest amount of goods and services at the lowest possible
cost. While all these financial management decisions are taking place, new savings continue to be invested in Level 1 until reconciled to each
individual's name. When and if a recordkeeping system is developed that tracks workers' savings as made, Level 1 could be disbanded.
Workers would receive an annual statement, have Internet and phone access to their accounts, and be able to make daily choices in Level 3 and annual
changes in Level 2. They would receive professional asset management, custody of their assets, and state-of the-art recordkeeping of their
The cost of this system through Level 2 — including asset management, custody, recordkeeping, 175 million to 350 million phone calls a year to a
customer service center and other costs, including postage — are estimated at about three-tenths of 1 percent (0.3 percent) of accumulated assets,
significantly less than most mutual fund costs.
The modernization of Social Security is not just a good idea — it is a necessity. Those seeking political office this year will have to respond to
voters' questions about how they would reform Social Security. Fortunately for them, much of the work has already been done.
This article originally appeared in the Washington Times on January 26, 2004.
Social Security reform plans: www.socialsecurity.org...
You will also find the dems perspective of Social Security there
This is an atrocious situations, not to mention "socialist"
Both these parties are blantantly obvious in how they want to control your funds... How have these two parties helped spread financial prosperity
across the board??
This is like organized crime, you work, they take, they may give back IF things work out... Not to mention their lack of educated guesses are anything
but educated guesses and they have been debunked in these point by point perspectives..
Look at the numbers, look at the savings, look at how much lack of control they really have..