SOCIAL SECURITY

Estimated Long-Range OASDI Financial Effects of a Proposal for Individual Social Security Investment—INFORMATION

This memorandum presents long-range estimates of the financial effects of the plan you have developed for individual investment accounts that would provide retirement income under the Social Security program. This memorandum includes a description of the plan, reflecting the intent of and specifications for the plan, as provided by Kathleen Black of your staff. While the provisions of the plan described in this memorandum are consistent with the intent of your recently introduced bill Individual Social Security Investment Program Act of 2005 (H.R. 530), some of the effective dates in the plan description below are based on your earlier bill (H.R. 4895 submitted to the 108 th Congress). Some of these effective dates differ by one or two years from those now specified in HR 530. In the interest of providing timely analysis, we are providing estimates with these qualifications. The estimates should be regarded as preliminary, but provide a good indication of the nature of the plan and its potential effects. All estimates are based on the intermediate assumptions of the 2004 Trustees Report, as well as additional assumptions described below.

The plan would offer to workers under age 55 on January 1, 2005 a combination of recognition bonds based on accrued benefit obligations plus an individual account contribution of 6.2 percent of future taxable earnings redirected from the OASDI payroll tax. For those who do not choose this option, current law benefits will continue, but will be based on a price indexed benefit formula. Older workers will remain in the current program without change, and future workers will be automatically enrolled in the individual account program. A minimum benefit financed with general revenue would be available to those participating in the individual account program. In addition, disability and young survivor benefits for these participants would continue unchanged. General revenue transfers would be provided as needed to maintain trust fund solvency during the period of transition. Enactment of this plan would eliminate the Social Security long-range actuarial deficit and meet the criteria for sustainable solvency. The program would be expected to remain solvent throughout the 75-year projection period and for the foreseeable future beyond.

Estimates for this proposal reflect the development of several innovations in our methods and substantial work by Chris Chaplain, Jason Schultz, and others from the Office of the Chief Actuary. Further development and refinement of these methods will allow for improvements in the estimates in the future.