Issues in Privatizing Social Security : Report of an Expert Panel of the National Academy of Social Insurance

by Peter A. Diamond (Ed.)

• ISBN13: 9780262041775
• ISBN10: 0262041774
• Format: Hardcover
• Copyright: 1999-06-25
• Publisher: Mit Pr

Summary

Two types of changes to Social Security have been proposed. One would keep the current defined-benefit structure but build and maintain a larger trust fund, to be partially invested in stocks and corporate bonds. The other would set up individual funded accounts, also to be partially invested in private markets. Both would raise taxes or lower benefits in the near term to increase funds for paying future benefits. This study addresses many important aspects of these politically charged proposals. The questions discussed include: Should Social Security have more advance funding? Should Social Security funds be invested in the stock market? If investments are organized by the government, what independent institutions would shield portfolio decisions and corporate governance from political pressures? If investments are privately organized, what would be the regulatory structure? Finally, should Social Security include individual defined-contribution accounts or stay with traditional defined benefits? The National Academy of Social Insurance is a nonprofit, nonpartisan organization whose mission is to conduct research on and enhance public understanding of social insurance, to develop new leaders, and to provide a forum for the exchange of ideas on issues related to social insurance.

Table of Contents

Preface	xv
Executive Summary	1	(32)
Introduction	33	(104)
Background	33	(4)
Report Scope and Organization	37	(2)
Advance Funding vs. Pay-As-You-Go	39	(8)
Social Security Finances	39	(3)
Increased Advance Funding and National Savings	42	(5)
Investment Policy	47	(20)
Individual Portfolio Choice and Returns	47	(3)
Risks and Returns with Trust Fund Investment in Stocks and Corporate Bonds	50	(2)
Money's Worth and Investment in Stocks	52	(2)
Effects on the Aggregate Economy of Trust Fund	54	(4)
Structural and Political Issues Associated with Private Investment	58	(9)
Individual Accounts vs. Single Collective Fund	67	(44)
Administrative Structure and Costs	67	(2)
Box: Tasks in Implementing Individual Accounts	69	(6)
An Illustrative Low-Cost/ Low-Services Plan	75	(8)
Economics of Accumulation	83	(7)
Benefit Structure	90	(6)
Individual Values	96	(1)
Political Concerns	97	(11)
Recapping	108	(3)
Issues of Choice	111	(12)
Choice in Investment Options	111	(3)
Choice of Annuitization	114	(5)
Voluntary Individual Accounts	119	(4)
Private vs. Government Collection, Management, and Distribution	123	(14)
Collection	123	(4)
Organization of Accounts	127	(7)
Annuitization	134	(3)
Conclusion	137	(4)
Glossary	141	(10)
Notes	151	(8)
References	159	(4)
Appendixes A and B	163