- The Washington Times - Thursday, August 9, 2001

The first person scheduled to testify before President Bush's Social Security commission this month will be the chief architect of the government's largest pension plan whose funds are privately invested in stocks and bonds.

In the first sign of the direction the 16-member, bipartisan commission wants to take Social Security reform, Co-Chairman Daniel Patrick Moynihan wants Roger Mehle who crafted the investment plan in the late 1980s to tell the panel how the Thrift Savings Plan works. And whether it can become the model for partially privatizing the troubled New Deal-era retirement program.

A former Treasury official in the Reagan administration who later ran the Federal Retirement Thrift Investment Board, Mr. Mehle's planned appearance before the panel on Aug. 22 tells us a lot about the commission's thinking on the sweeping reform plan that Mr. Bush has asked the commission to devise.

With more than 2.5 million federal employee investors, the Thrift Savings Plan that Mr. Mehle designed in 1986 is the largest defined contributions pension plan in the world. Under this plan, government employees including members of Congress and their staffs invest in blue chip, S&P 500 stocks, U.S. Treasury bonds and corporate bonds for their retirement. More recently, the government's matching pension plan expanded its employee investment options into a small cap stock fund and an international stock fund.

In addition to Mr. Mehle, the commission also plans to hear from a top official who runs the giant TIAA-CREF private stock and bond fund for college and university employees which boasts low expenses and a high rate of return.

Mr. Bush has asked the commission to come up with a detailed plan to let America's workers voluntarily invest a portion of their Social Security payroll taxes in stocks and bonds. But that mission poses huge challenges for the blue ribbon panel. What kinds of investments offer acceptable risks over the long term? How much should the government limit or pre-approve investment funds? What other restrictions should be imposed on them?

By focusing on the government's low risk, immensely popular TSP investment plan and TIAA-CREF, the commission approach seems to be a very cautious, incremental one. Start with a few limited market index plans that invest in large corporate stocks, rock-solid Treasury bonds and other government-backed securities. And require that the funds be shifted to largely bond funds when workers near retirement age.

The commission will complete its reform plan this fall, though no one expects any legislative action until after the 2002 midterm congressional elections.

But the commission's work has already raised the political stakes for the Democrats who have unwisely positioned themselves against personal retirement accounts in the Age of the Investor Class.

Worried that the Bush plan is gaining support among younger voters, women and minorities, House Democrats headed home for the August recess last week armed with prewritten news releases, op-ed columns and other broadsides accusing the president of wanting to cut Social Security benefits, wanting to raise the eligibility age and wanting to dismantle the program.

The White House called the charges "all lies" and Charles Blahous, the executive director of the commission, flatly denied them. Under the president's guidelines, the plan cannot reduce benefits. As for tampering with the eligibility age, "none of the reform plans in Congress raised the retirement age, not one," Mr. Blahouse told me. "It is incorrect that the commission will raise the retirement age. That's just wrong."

The Democrats' poll-driven "talking points" and other materials were based on a series of Democratic focus group surveys conducted by Peter Hart Research during the 2000 campaign. But the Democrats' latest attacks conveniently ignore the Hart poll's findings that show widening support for the Bush plan. Among them:

• "Many non-retired Americans, especially those under age 40, express strong interest in proposal for individual investment accounts."

• "Social Security supporters should understand that partial privatization has genuine appeal among many voters. … As more working Americans gain investment experience, through 401(k)s and similar plans, they grow more comfortable with the idea of managing their retirement savings."

• "Many working people say that they would take advantage of an option to invest a portion of their payroll taxes, including many who oppose privatization."

• "Lacking confidence in the government's management of Social Security funds, many people speculate that they would earn a better rate of return if they invested their funds."

Faced with the undeniable popularity of personal Social Security investment accounts, as shown by their own polls, Democratic leaders are mounting a summer campaign of fear and demagoguery against the commission. But as more of their own constituents learn that most federal employees even their own congressmen are investing their pensions in the financial markets and earning higher rates of return than Social Security offers, that campaign is doomed to fail.

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