February 16, 1996
Web posted at: 10:20 p.m. EST
WASHINGTON (CNN) -- Taxpayers who complain they have no control over the money they pay into Social Security could find that changing in the years ahead. An advisory council has come up with a plan that would let employees invest a chunk of those taxes in stocks and bonds.
Under the plan, workers could invest about 40 percent of their Social Security payroll deductions in so-called personal security accounts held by private investment companies. The remaining 60 percent of payroll tax revenues would be used as a central source of Social Security funding.
At present, employers pay half the 12.4 percent payroll tax that goes into Social Security and workers pay the other half.
Workers could choose how the funds in the personal security accounts would be invested, but would also have to absorb any losses. Retired employees would have greater choice on how the money is paid to them: They could choose between monthly amounts, a lump sum, or leaving the money to their heirs.
It is one of the three plans the Social Security Advisory Council is considering. The panel, set up in 1994 to make recommendations to the Social Security Administration, is expected to issue its report in a few weeks.
When the Social Security system was inaugurated 60 years ago, unemployment was skyrocketing, but there were still 36 people working to support each retiree who was receiving benefits. But in the last few decades, that ratio has plummeted rapidly, and by the year 2000 there will be just two people working for every retired person.
The council was appointed to suggest amendments to the system, but some traditionalists on the panel disapprove of the private investment plan. They say it breaks a long-standing contract between the government and the people.
"Clearly what this plan does is increase the risk of individuals coming out in retirement with maybe very little or very lucky with quite a lot," said council member and former Social Security Commissioner Robert Ball.
So far, none of the measures has found favor with a majority of the council, Ball said. If no single plan gets a majority of support, all three will be submitted.
Some members of the council want to make minor corrections in the system, while others recommend a greater overhaul.
The most modest change being considered would infuse money into the system by raising taxes on Social Security benefits, combined with a large-scale investment of Social Security funds in higher-yielding equities.
Currently, Social Security payroll taxes paid by 125 million workers are invested in special-issue U.S. Treasury securities that have historically yielded far less in interest than corporate shares.
The system pays benefits to 43 million retirees and people on disability, but is expected to come up short of its obligations in 2029.
The advisory council report was due at the end of 1995, but deep differences among members have delayed it.
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AP contributed to this report.
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