- The Washington Times - Wednesday, December 12, 2001

A presidential commission unanimously approved recommendations yesterday that would let younger workers invest a portion of their Social Security contributions in the stock market.
In some cases, benefits for future retirees would be cut.
Rather than agree on a single option, the commission decided to send President Bush three proposals for private investment accounts. Each would require the government to provide significant funds for the transition. Estimates range from $1.3 billion to $71 billion with 100 percent participation.
The report does not offer examples of how much benefits would be cut, although members of Mr. Bush's Commission to Strengthen Social Security acknowledged they would be.
"We're going to face a lot of criticism I'm sure for cutting benefits, but it won't affect anybody over age 55 today," said Commissioner John Cogan.
Commission members said the current system is financially unstable and needs reform.
"We're all on the Titanic as it relates to Social Security and people are telling us it's the safest ship afloat," said Robert Johnson, a Democratic commissioner. "But we are heading for a disaster."
Said Gerald Parsky, a Republican commissioner: "Doing nothing is not a real option. Something must happen to preserve this important system."
Still, the final report suggests that policy-makers discuss the issues for at least a year before taking legislative action. Any action before then appears unlikely now, given the state of the economy and the repercussions from the terrorist attacks.
"The exact timing of when Congress may be able to move Social Security legislation is clearly up in the air, but many in Congress do not think it can happen before the [2002] election," said White House spokesman Ari Fleischer.
Social Security is expected to start paying out more in benefits than it takes in from payroll taxes by 2016 because of the retiring baby boom generation.
In the report's recommendations, the first option creates a voluntary personal account but does not make other changes in Social Security's benefit and revenue structure. Specifically, it would:
Allow workers to invest 2 percent of their payroll taxes in personal accounts.
Reduce benefits promised under the traditional program by the total value of the personal account, compounded at a 3.5 percent annual interest rate.
Not solve the future funding problems of Social Security and eventually would require benefit cuts and tax increases or additional revenue to make up a nearly 28 percent shortfall by 2052.
A second option would give future retirees Social Security benefits that at least match those of today's retirees, according to the report. It would:
Allow workers to invest up to 4 percent of their payroll taxes in a personal account up to $1,000.
Cut traditional benefits for retirees by the total value of the personal account, compounded at an interest rate of 2 percent.
Change the way regular benefits are calculated, tying them to price inflation instead of recipients' wage growth starting in 2009.
Require government funding of $1.3 billion to $71 billion with 100 percent participation.
Under the third option, which the report says would enable retirees to exceed current-law benefits:
Workers would be required to save 1 percent of annual income to qualify for a personal investment account. Government would match by 2.5 percent of annual income, up to $1,000.
For low-income workers, contributions would be subsidized by a refundable tax credit.
Traditional benefits would be cut by the total value of the personal account, compounded at an annual interest rate of 2.5 percent.
Incentives offered for postponing retirement, and early retirement penalized.
Government spending of $8 billion to $55 billion needed to supplement the plan.

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