Social Security (PCSSS) on Personal Retirement Accounts
October 2001
I have a few thoughts to share with the Commission as it prepares to discuss how personal
retirement accounts might be organized. I am caught in the middle of this debate, as I will turn
39 this month and wife turned 40 last week. Any plan that is eventually enacted as a result of its
work will affect my family coming and going, as workers our age will most likely see elements of
the existing system and the new system of private accounts.
In preparing for this debate, the Commission should be advised of how current tax and benefit
structures relate to each other. The effect of the current program on distribution of income
should be calculated for low earners, average earners and high earners at the income cap. Any
system of accounts must mirror or improve on the redistributional effects of the current system,
or it has no hopes of passing the Senate or of gaining my support, and the support of most
Americans. Make no mistake, the issue will be raised in Congress. For the Commission?s
work to have any chance of success, redistributional question must be fully resolved in the
coming months.
As I have stated in the past (though I have received no response to date from members), the
most painless vehicle for continuing redistribution while at the same time using private accounts is
to decouple the employer contribution from income and either distribute it in private accounts or
credit it in the public system such that the resulting balance reflects the benefit entitlement. Of
course, to exactly duplicate these structures is cumbersome. An equally valid option would be
to distribute and/or credit the employer contribution equally to all full-time employees, regardless
of wage level. Such a feature would be understandable to the tax paying public and would
satisfy demands for equity.
The other problem to be dealt with in the creation of private accounts is to devise some method
by which revenue might be increased. The continuing decline in the financial markets have
shown that depending solely upon their performance could have disastrous consequences for
those with equity near or at retirement. Historically good average performance does not help
retirees in a downturn.
I urge the Commission to look instead at the use of employer voting stock for at least the
employer contribution, allowing the employee contribution to be invested in either the market or
in the employing firm at the employee's option. While this option will not be applicable to the
majority of firms, it will apply to the majority of workers (corporations tend to have larger work
forces than small business with non-corporate modes of ownership). Such an approach would
have two advantages. The first is that employees of such corporations will have the incentive to
become more productive and increase profitability for their own retirement. The second is that,
for corporate firms, increases in the required investment to assure that benefits are adequate
would be less painful than increases in taxes - and such increases would go right to increased
investment, which is the ultimate goal of those economists who urge a higher savings rate.
I hope that the Commission finds these comments helpful in its forthcoming debate. Please feel
free to contact me if I can be of any assistance.
Michael Bindner
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