McCotter Legislation Would Introduce Private Investment Plan to Save Social Security

By on September 13, 2011 in Current Events with 51 Comments

Rep. Thaddeus McCotter (R-MI) plans to introduce legislation (HR 2889) designed to save the Social Security retirement and disability trust funds from insolvency.

The Social Security Board of Trustees projects that insolvency is likely to occur in 2036 based on the most reliable current assumptions. McCotter’s bill would create personal savings accounts for all workers 50 and under that are invested in the free market, participation would voluntary, and a minimum return on investment would be guaranteed.

The investment options created would be one of three:

  • 90/10 – 90% of the portfolio would be invested in stocks and 10% in fixed income securities
  • 70/30 – 70% invested in common stock; 30% in fixed income securities
  • 50/50 – 50% common stock; 50% fixed income securities

The common stock investment options would be a portfolio designed to replicate the performance of one or more of the stock market indices; fixed income would be a mixture of high-grade corporate bonds.

McCotter’s press release did clearly state that “a minimum return on investment is guaranteed,” however, as even somewhat less seasoned investors would know, the above investment scenarios will undoubtedly have some down years where the portfolios would have a negative return, but based on history over the long run, they most likely would show a general trend upwards.

I was curious if individuals would get to manage the money in their own accounts or if the government would oversee them. It’s the latter; a new agency would be established (the Personal Social Security Savings Board) to manage the funds. People who delve into the details of the bill itself might find some similarities between the TSP’s investment board and this new one that would be established.

Because the personal investment accounts would replace as much as 50% of each participating worker’s retirement benefit, it is projected that the trust funds would experience significant relief as soon as the first participants retire.  Benefits for current retirees would be unaffected, as would future benefits for workers above the age of 50, and those who choose not to participate.

Funding for the personal savings accounts would come not from new taxes (which the legislation specifically forbids), but from efficiencies realized by block granting specific federal programs to the states, and from savings realized from the elimination of other federal programs to be identified in companion legislation.

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Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce. Ian also has a background in web development and does the technical work for the FedSmith.com web site and its sibling sites.

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