ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, March 26, 1996 TAG: 9603260059
SECTION: NATL/INTL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Cox News Service
For the first time in Social Security's 60-year history, a group of government advisers will recommend that some of the system's retirement money be invested in the private sector, a Senate panel was told Monday.
``All members of the advisory council favor private investments'' in addition to the fund's current purchases of government bonds, Edith U. Fierst, a member of the Advisory Council on Social Security, told the Senate Finance subcommittee on Social Security and family policy.
``The difference of opinion among us is whether investments in equities should be made by individual workers or by the trust fund,'' Fierst said.
The 13-member council appointed by Health and Human Services Secretary Donna Shalala in 1994 was supposed to have finished work by the end of 1995. Its sharply divided report now is scheduled to be released next month.
Panel members agree that Social Security - which pays retirement, disability and survivors' benefits to 43.3 million Americans - will face a 2.17 percent shortfall if annualized over the next 75 years. They disagree on a solution.
``Time for reforming the Social Security system is running out,'' said Olivia S. Mitchell, co-chairwoman of a technical panel for the council. ``In our view, needed changes in Social Security benefits should be announced soon, with sufficient lead time for workers to adjust their savings, consumption and retirement plans to help people prepare for the future.''
If Congress were to make up the shortage simply by raising payroll taxes during the next five years, it would have to increase them by 2.5 percentage points, Mitchell said - more than one-fifth of the 12.4 percent now paid jointly by workers and employers.
If Congress waited 15 years, the tax would have to increase by 3.1 percentage points, and if it waited until 2022, it would have to rise by 4 percentage points.
Because such sharp increases would be politically unacceptable, Mitchell said the technical panel also suggests increasing the full retirement age from 65 to 70 and the early retirement age from 62 to 64 or 65.
Council members testifying before the subcommittee Monday said their report would recommend three different plans to reform Social Security:
The plan with the most votes, six, would maintain the current system, but instead of investing all of the Social Security Trust Fund in U.S. Treasury bonds would invest 40 percent of the money in private accounts through broad-based index funds. The investments would be controlled by a panel of trustees appointed by the president and confirmed by the Senate.
The next plan, with five votes, would shift 5 percent of the 12.4 percent payroll tax into mandatory private investments for most workers. People 55 and older on Jan. 1, 1998, would remain in the current system. People younger than 25 on that date would move into the new program. People between those ages would be phased out of the old program on a sliding scale of benefits.
A third plan, with two votes, would make minor adjustments in the existing system but add a 1.6 percent payroll tax that would be privately invested.
Henry Aaron, director of economic studies at the Brookings Institution, warned lawmakers not to be stampeded into making a rash decision.
``The projected long-run deficit in Social Security does not come close to meriting designation as a crisis,'' Aaron said. He said reforms ``should not be considered in an atmosphere that `Oh, my god, the financial sky is falling.'''
While worrying that their options appear to be raise taxes or reduce benefits, senators said they also were concerned that the current method of increasing benefits using the Consumer Price Index is too costly.
Sen. Daniel Patrick Moynihan, D-N.Y., said using the CPI to increase Social Security benefits boosts payments 1 percent to 2 percent higher than the real rate of inflation. He suggested reducing cost-of-living increases by 1 percentage point.
But Aaron and Mitchell suggested changing the way the CPI is computed, rather than making a permanent change to make benefits lag the inflation index.
LENGTH: Medium: 79 linesby CNB