 |
 |
 |
 |
 |
 |
 |
 |
MATURE MARKET HEADLINES POSTED 12/10/98Individual Social Security Accounts FeasibleDavid C. John and Gareth G. Davis, writing for the Heritage Foundation, believe that administrative costs are not a barrier to creating a system of individually owned and privately managed Social Security accounts. It is not that difficult to structure the new system to keep accounts simple and costs low. Existing technology allows for creation of a method to track these investments, and the experience of the United Kingdom shows that the administration of such accounts could be contracted out successfully.Creating and administering a retirement program does not require rocket science, and while this task may be difficult, it is not impossible. The Social Security program today administers about 140 million accounts. Administering a system of individual accounts would require little more than data processing. Similar financial data systems already exist. The three largest private credit bureaus currently administer average databases of more than 190 million accounts and, on average, update active accounts monthly. These private systems are almost a third larger than Social Security, yet are able to post their account changes much faster. As computer technology increases, the difficulty of administering such immense databases will continue to diminish. Administrative costs generally involve the amount of money that an account owner must pay for maintenance and funds management. In most cases, these costs include (1) the processing of information related to income and the amount invested; (2) actual fund management; and (3) determining eligibility for benefits and the payment of those benefits. The relative size of each component will vary according to how a plan is structured. To keep administrative costs low, a simple retirement program could start with individually owned and privately managed account with limited investment options. Initially, investment options could be limited to a stock index mutual fund, a high-grade corporate bond fund, and a government bond fund that invests in the new Series Savings Bonds. Additional investment options and consumer features could be added as the system matures and costs drop. Individual Social Security accounts could be structured like the defined contribution retirement plans currently offered by various U.S. employers. Defined contribution plans allow workers to invest up to a certain level of income (which may be matched, either partially or wholly, by the employer) in a specified range of investments. In conclusion, as the Congress and the President debate on Social Security, they should work to structure a simple system of individually owned, privately managed Social Security accounts. They should look beyond the pension industry for examples of technology and management techniques that could be adapted to this task. And they should not assume that any aspect of creating or managing these accounts must necessarily be handled by a federal agency. David C. John is a Senior Policy Analyst for Social Security at The Heritage Foundation. Gareth G. Davis is a Policy Analyst in The Center for Data Analysis at The Heritage Foundation. See related articles in the AgeVenture archives. "Social Security Takes Stock of Wall Street" "Social Security: the new oxymoron" "New Retirement Age Won't Fix Social Security" AgeVenture News Service, www.demko.com BACK TO TOP |