The following article is provided courtesy of CCH, Inc.
Following the recent release of Social Security reform proposals by a presidential commission, congressional leaders unveiled proposals of their own that would establish personal retirement accounts within the system.
The Social Security Guarantee Plus Plan (HR 3497) was introduced on December 13 by House Ways and Means Social Security Subcommittee Chairman E. Clay Shaw, Jr., R-Fla. Under Mr. Shaw's bill, beginning in 2002, workers covered under Social Security each year would receive a refundable tax credit equaling 3% of their wages, up to about $18,000, and 2% of wages above that, up to the Social Security 2002 wage cap of $84,900. The tax credits would be automatically deposited into workers' accounts.
Workers would have a choice of money managers to manage their accounts. A government board, similar to the Federal Retirement Thrift Savings Board, would establish investment regulations. Worker contributions would be invested in a 60-40 mix of equity index funds and corporate bonds. Account earnings would accrue tax free. Workers could not access their accounts for any reason before retirement or disability.
Once a worker begins to receive retirement, disability or survivor benefits, the worker would receive 5% of the account balance as a lump-sum payment. The Social Security Administration would calculate monthly payments based on the remaining account balance. The annuity from the account would be transferred monthly to the trust funds to help pay the benefit. The worker would continue to receive full benefits even if the account becomes depleted.
If a worker dies before collecting benefits, the worker's heirs could receive the account balance tax free. Workers who choose not to collect Social Security could leave their accounts to their heirs. Shaw said that his plan would use general revenues to fund accounts and pay back the borrowed money plus interest within a 75-year valuation period as the system begins to generate surplus cash.
Another plan outlined by House Majority Leader Richard K. Armey, R-Texas, and Rep. Jim DeMint, R-S.C., would allow workers under 55 to save 3% to 5% of their current payroll taxes in a personal retirement account, with lower- income workers allowed to save more. Upon retirement, workers could either annuitize their entire account or annuitize up to 40% of their accounts or an amount up to the poverty level, whichever is higher. Congressmen Armey and DeMint said that their plan would allow seniors to fully own and pass on the wealth accumulated in their accounts when they die during retirement. The accounts would be administered like the Federal Employees' Thrift Savings Plan, with investments mixed between 60% stocks and 40% government bonds. Congressmen Armey and DeMint said that their plan would reduce the system's unfunded liability by two-thirds over the next 75 years.