- The Washington Times - Monday, November 19, 2001

President Bush's Social Security reform commission has made a sensible midcourse correction in its strategy. It has decided to come up with a list of options to change the system, instead of one grand, take-it-or-leave-it plan.

After meeting with White House officials, including Bush's chief political adviser, Karl Rove, commission members concluded it would be politically foolish for the presidential panel to propose a single plan that would be a fat political target for the Democrats to attack throughout the 2002 congressional election campaigns.

The decision was made to offer a broad list of reform alternatives, based on the president's proposals to let workers voluntarily put some of their payroll taxes into their own private retirement-investment accounts.

Administration officials believe a wider range of reform recommendations to partially privatize the system from the most restrictive to the most flexible will be a lot harder for the Democrats to shoot down.

"It would be counterproductive to put out one plan that is unlikely to survive the legislative process," a commission official told me. "It's far better to give Congress a list of alternative proposals, so that they can see the tradeoffs that will have to be made in each one."

Originally, it was expected that the commission would issue a report this fall and Congress would draw up and consider legislation sometime next year. But the notion that Congress would attempt to overhaul the nation's most politically volatile social program in an election year was never a realistic scenario. And it was even less so after the September 11 terrorist attacks, which pushed the issue to the far back burner.

The White House plan was to put the commission's recommendations in the public arena, to be vigorously debated throughout the election year, and then begin legislative deliberations in 2003. The plan remains the same.

There is another reason for the decision to offer multiple alternatives. The 16-member commission is divided over how to implement the changeover to a system of personal retirement accounts, how much of the payroll tax should be diverted to such plans, and how much flexibility retirees should be allowed to use the funds they have built up over their working years.

Administration and commission insiders tell me that when the panel's final report is released sometime before Dec. 21, it could contain between three to six options for Congress to consider.

One recommendation will let workers invest 2 percentage points of their payroll taxes in a simple, pre-approved, stock or bond portfolio, offering them three to five investment options at first. Another option would increase the investment to an average of 5 percentage points.

One version would let people put different proportions of their income in their plans so as not to overly favor one income group over another. For example, lower-income workers hypothetically could be allowed to invest 7 percentage points of their payroll taxes, while someone in a higher income group could invest only 3 percent.

Administration of the accounts and the collection of plan contributions would be managed by a government agency, but private mutual fund firms would manage the equity investments themselves.

In another option, as the accounts grew in size, individuals could move to some other pre-approved funds and make changes in their portfolios under some restrictions.

But many other risk-taking issues remain to be sorted out by the commission. What happens to a fund when workers near retirement? Should they be required to shift to safe, secure bond funds to lock in their gains? Should they purchase a lifetime annuity upon retirement to give them regular, guaranteed income? Or should they be given more flexibility over what to do with their investments in their retirement years?

Clearly, the nation's focus on homeland security and the war against terrorism has virtually eclipsed most of the other issues on Washington's agenda. And it is difficult to say when that situation will change.

However, one thing is certain on this issue. If Democratic critics of personal Social Security retirement accounts think that Wall Street's decline over the years has undermined America's confidence in the stock market, they had better think again.

The Investment Company Institute recently reported that while stock prices declined over the past year, mutual fund investment ownership jumped from 49 percent to 52 percent of all U.S. households. Americans are not afraid of the stock market. They see it as the best means to build retirement security in the years to come.

Meantime, the Social Security clock is ticking as the day of reckoning draws near, when there will be millions of retiring Baby Boomers demanding benefits and not enough taxpaying workers to keep the system solvent. The commission's upcoming proposals should help get things moving toward a long-term, wealth-creating solution that will be the biggest anti-poverty program in America's history.

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