January 28, 2005


Bush Advisers OK Social Security Plan (LAURA MECKLER, 1/28/05, Associated Press)

President Bush's advisers have settled on a proposal for structuring the personal accounts they hope to create in Social Security, while on Capitol Hill Senate Democrats were launching an effort to defeat the plan altogether.

Under a plan recommended to Bush, the private accounts would resemble many company-sponsored retirement plans, with just a handful of investment options.

By default, workers would be enrolled in a "life cycle" account, in which investments become more conservative as investors age, if they do not choose one of the other options, according to two officials speaking on condition of anonymity. [...]

In devising a structure for the private accounts, the Bush administration is modeling its proposal after the Thrift Savings Plan, a tax-deferred retirement investment plan similar to a 401(k). The idea is to minimize risk for people at the outset by offering as few as three to five diversified investment funds.

Bush said in December that his plan would make sure people could not invest "in a frivolous fashion."

Under the Thrift Savings Plan, federal workers have five investment options, including government and corporate bond funds, a stock fund that tracks the S&P 500, an international fund and other stock funds.

Under the emerging Bush plan for Social Security, the default investment would be a "life cycle" account. It would begin with investments that have greater potential for both risk and reward and shift to safer bonds as a worker ages, officials in and outside the administration said.

The government would be responsible for keeping track of how much money is in each worker's account and give the lump sums to a financial services company to invest, a mechanism aimed at keeping administrative fees low, they said.

That would mean only a limited profit potential for Wall Street. More money might be available for industry if a second tier of investments were permitted. Under this model, once a worker's account reached a certain level, he or she could choose from a broader range of investment options. Any number of mutual funds could be approved for investment at this stage.

Think of it as a low-risk 401k.

Posted by Orrin Judd at January 28, 2005 10:01 AM

The low-risk part doesn't really matter very much. The most important thing is that the account will be in the worker's own name and will de-facto belong to him. Unlike SS, where old folks _think_ that they have their own account but in fact don't.

Posted by: ray at January 28, 2005 10:13 PM

Low risk is vital, lest people lose money and we have to pay benefits anyway.

Posted by: oj at January 28, 2005 10:59 PM