Social Security Reform

by Paul Schott Stevens

December 21, 2004

The Institute believes it is imperative to ensure the long-term health of the Social Security system. To this end, ICI commends the Bush Administration’s effort to develop and propose appropriate reforms of the system. Along with any Social Security reform, we also should expand private retirement programs and simplify the rules governing them.

The Social Security system – along with individual savings (including traditional and Roth IRAs) and employer-sponsored retirement plans – are the three “pillars” of the nation’s retirement income policy. These public and private components must work in concert to enable Americans to enjoy a reasonable standard of living in retirement. Ensuring that Americans have opportunities, incentives, and tools to save for their retirement is especially important in light of our nation’s aging demographic profile.

The Institute strongly supports maintaining Social Security as a universal system, and one that provides a floor benefit to those many Americans who rely principally on Social Security for retirement income. Preserving the fiscal soundness and fairness of the Social Security system will help ensure Americans’ continued faith in and support of the program.

The Institute thus strongly supports the Administration’s close and timely attention to Social Security reform. All credible reform options should be considered carefully. Under one such proposal, younger workers would have the option to place a portion of their Social Security contributions into a personal account invested in a government-sponsored fund or funds similar to those available to federal employees under the Thrift Savings Plan (TSP). The Institute believes that any proposal for personal accounts should be judged by whether they will bolster the long-term financial soundness of the Social Security system.

Personal accounts could have other benefits as well. They would introduce many more Americans to basic principles of saving and investing. Encouraging American workers to focus more broadly on these basic principles could have very positive effects – including, for example, prompting them to make additional provisions for their retirement security through individual savings and employer-sponsored plans.

If reform of the Social Security system entails opportunities for younger workers to invest in personal accounts, then care must be taken to protect them as investors, through measures similar to those in the federal securities laws, and to educate them about investing. The Institute has substantial expertise concerning such issues and we look forward to working with the Administration and Congress as they consider a range of proposals to enhance retirement security.

As a vitally important complement to any Social Security reform effort, we urge that the Administration and Congress expand private retirement programs and simplify the rules governing them. As noted above, these private programs, such as IRAs and employer-sponsored plans, are also essential to Americans’ retirement security. The greater their success and the more widespread their use, the less pressure the Social Security system will be under in the future.