March - April 2002
Investing
for Retirement: The Debates Continue
The White House
continues to advocate changes in Social Security policy that would
enable workers to invest part of their retirement nest egg in the
stock market. President Bush recommends that changes be made in
pension policy and that Social Security be partially privatized as
part of a major overhaul of retirement savings policy.
In a speech made 28
February at a retirement savings conference in Washington, D.C.,
President Bush told attendees that the average return on Social
Security is less than two percent. "And in the long run," he
continued, "Social Security can pay retirees less than 30 percent
of what they earned before retiring. That's not good enough."
As an example,
President Bush cited the fact that a person who retires after working
45 years would receive $1,128 a month from Social Security. If that
same Social Security money had been invested in the stock market over
the last 45 years, the person would receive $3,700 a month.
Bush also said
workers should be allowed to sell company stock and diversify into
other investments after three years. He said his plan allows older
workers to keep their Social Security benefits exactly as they are.
Younger workers, however, might want to take advantage of compounding
interest and personal retirement accounts.
Congressional
Democrats oppose the Bush recommendations. Senate minority leader Tom
Daschle (S.D.) called the proposal a retirement "insecurity"
plan. He said he is "pleased" that the Republicans are
"openly discussing their plans to privatize Social Security and
cut the benefits of recipients…The American people need a plan to
protect Social Security, not deceptive promises designed to conceal
the truth and protect politicians at the polls."
Congressional
remedies abound. More than 15 bills to overhaul the laws and
regulations governing 401k plans are currently pending in Congress.
The flaws, however, include a lack of control over workers' own
investments, absence of rules protecting them from stock market
volatility, and the wide gap between opportunities for workers and
executives — who have a wider variety of retirement savings options. Such
retirement security defects were at play in the Enron collapse.
In Congress, the
major question is whether and how to change the law to require stock
holding to be diversified, so that employees' retirement savings will
be exposed to less risk.
It's hardly worth
stating that both parties are trying to get mileage from the issue.
House majority leader Dick Armey (Tex.), noted that "40 years
of neglect has permanently damaged Social Security's health and
diminished its promise. The time has come to stop putting political
expediency ahead of reform. This is not a task for the timid."
Armey has joined
with Rep. Jim DeMint (R-S.C.) to promote a plan to invest a portion of
payroll taxes in a limited array of equities to create private
accounts. Armey argues that Democrats are eager to
"demagogue" the issue and said their plan consists mostly of
attacks on the GOP, with the real meaning so miniscule as to
"fit on a bumper sticker."
In early March, a
House Ways & Means subcommittee examined a GOP proposal to issue
certificates that state that Social Security benefits are guaranteed
to present and future beneficiaries. Ways & Means Committee member
Robert Matsui (D-Calif.) said this solution shows that Republicans are
"vulnerable on the issue." At the same time, House minority
leader Dick Gephardt (Mo.) said the Enron collapse is a prime argument
against Social Security privatization.
The debates
continue.
Edith T. Carper is a
special correspondent to IEEE-USA Policy Perspectives.
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