Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, August 3, 1995                   TAG: 9508030046
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-5   EDITION: METRO 
SOURCE: Associated Press|
DATELINE: WASHINGTON                                LENGTH: Medium

SOCIAL SECURITY SUBSTITUTE STUDIED

The plan, written by Sens. Alan Simpson, R-Wyo., and Bob Kerrey, D-Neb., would permit workers to invest about one-sixth of the Social Security taxes they and their employers now pay in a personal investment plan, similar to an Individual Retirement Account.

Simpson's Senate Finance subcommittee on Social Security was told Wednesday that there are both risks and benefits to consumers from diverting even a small share of Social Security's payroll taxes into private retirement funds.

Workers who invest wisely, witnesses told Simpson, could reap far greater returns at retirement than those who depend solely on Social Security. But, said other experts, not everyone will invest wisely. And the families of those who die early or become disabled could be pushed into poverty due to investments that do not have a chance to mature.

Now, workers and their employers each pay a Social Security tax of 6.2 percent on wages up to $61,200. The bill would allow an employee to divert 2 percentage points of those taxes.

The system takes in more than it spends each year on the nation's 43 million retirees, disabled workers and survivors. But by 2013, Social Security will begin spending more than it collects in taxes and will be broke by 2030 unless restructured, according to the government's projections.

Backers of Simpson's plan say it begins to address the pending crisis of insolvency and a lack of confidence in the system, while increasing the retirement earnings of today's working Americans.

Stephen J. Entin told Simpson that private savings plans ``could easily deliver several times more retirement income for future workers than the projected benefits payable by a patched-up Social Security system.''

At a 7 percent real return, a dollar saved at age 20 would be worth $16 at age 60, and $32 at age 70, said Stephen J. Entin, resident scholar at the Institute for Research on the Economics of Taxation.

Entin said the added savings would also boost capital formation, wages and employment.

But Social Security Commissioner Shirley Chater said that Congress should be finding ways to encourage private investments as a supplement to Social Security, and not as a substitute.

Chater said some people will invest wisely, avoid disability or early death, and realize a greater return on their investment than they would get from Social Security.

``But then again, many people would not,'' said Chater, who did not testify. ``What happens to those millions of people? And what burden would be placed on taxpayers if welfare rolls increased to support the many people whose private investments failed?''

She said Social Security never was meant to be a personal investment program; rather, it is a social insurance program.

``Unlike private pension plans, social objectives - such as raising the standard of living for low-income workers and offering financial security to the families of all workers - are an integral part of Social Security,'' she said.

Social Security replaces 42 percent of the earnings of a worker with average wages, 27 percent of a high-wage worker's earnings and 57 percent of a minimum-wage worker's earnings.