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by Cindie Moore
NCTR Washington Counsel

Social Security Update

Wondering whether anything will be done in your lifetime to shore up Social Security's financing? We all know the problem: Baby Boomers will begin to retire in 2010. But, quite inconveniently, the Social Security trust fund is going to run out of money just 20 years later. This fact leaves many people, especially the young, cynical about whether Social Security will be there when they retire. Because of the effect of a potential Social Security insolvency on NCTR members, we'll keep you posted on developments in this area.

New Spin: the Social Security Program as a "Wealth Builder"

Senator Bob Kerrey (D-NE), a proponent of quick action on shoring up Social Security, has dusted off an old idea and is giving it a new spin. Specifically, he argues that his proposed Social Security individual savings accounts will encourage the public to view Social Security as a means of wealth building.

Under the Senator's idea, people could divert 2% of their Social Security payroll tax into individual savings accounts. Account holders would have the opportunity to invest the money in varying risk instruments. The Senator introduced a form of this proposal in 1995 as part of a series of proposals on overall Social Security reform (S. 824 dealt with savings accounts only and S. 825 was an omnibus bill that included the accounts proposal). The Senator is expected to re-introduce the accounts proposal shortly.

The savings account idea has met with some controversy. Opponents claim that the proposal is being pushed by Wall Street as a means to expand business. In response, Kerrey says that the federal government will invest the money in the accounts. Other skeptics wonder whether the accounts will leave some Social Security beneficiaries with an inadequate benefit. Kerrey says that the basic Social Security safety net would stay in place.

To advance the debate, Kerrey argues that Americans should view Social Security as a means of wealth building. If they have their own personal Social Security savings accounts they will see their savings grow. Everyone who participates can enjoy the "miracle of compounding." Because participation is generally mandatory for private sector workers, he is hopeful that low income Americans will see the advantage of diverting a portion of their payroll tax into a savings accounts. That way, according to the Senator, old and young, rich and poor will see tangible evidence of part of their Social Security benefit - in the form of a savings account - thereby providing better political support for the program. At present, Kerrey contends that the average American worker views Social Security merely as a tax (which, of course, it is) that is deducted from his/her pay check. The tax may eventually translate into a benefit, but until that time, it is intangible and has no immediate impact. In the Senator's opinion, the savings account proposal would change that viewpoint.

Mandatory Social Security Coverage of Newly Hired State and Local Government Employees

While we're on the subject of the proposed Kerrey legislation, NCTR members in non-social security states should know that the Senator included mandatory coverage in S. 825, which was introduced last Congress. Most other Social Security reform proposals have done so as well. Bucking this trend is Rep. Jim Bunning (R-KY), who chairs the House Ways and Means Subcommittee on Social Security. He has requested Congress' investigatory arm, the General Accounting Office (GAO), to study how public plans will be hurt by mandatory coverage and how benefits and costs of plans in non-Social Security states compare with plans in states with coverage. The government pension offset and the windfall provisions, which can reduce Social Security benefits of state and local government employees in non-Social Security states, will also be included in the study. The study is due sometime next spring with hearings expected sometime thereafter.

Government Pension Onset Bill Gaining Support

Meanwhile, for those of you following the government pension onset issue, you'll be glad to hear that H.R 2273 by Rep. William Jenerson (D-LA) now has 78 cosponsors. The bill will mitigate the adverse effect for low income retirees by exempting their Social Security spousal benefit from the onset. The National Association of Retired Federal Employees (NARFE) is spearheading the effort to round up supporters. Working with NARFE is such groups as the Illinois Retired Teachers Association.

West Virginia Voters Say Yes to Pension Investment in Stocks

On September 27, the people of West Virginia decided that their state's pension funds should take advantage of a strong stock market and voted to eliminate the ban on equities investment in the state constitution. As Governor Underwood noted ruefully in an appeal to the voters, "our neighbors in Virginia were investing a share of their pension funds in stocks and earned up to 21.9%," while West Virginia funds were earning single digit returns. With this change, West Virginia joins the 49 other states whose laws allow such investment. Voters in South Carolina and Indiana eliminated their constitutional bans just last year.

Uniform Law Commissioners Seeking Targets for UMPERSA Enactment

With the approval of the Uniform Management of Public Employee Retirement Systems Act (UMPERSA or Act) under their belt, the Uniform Law Commissioners are beginning to target states for possible enactment. While no states have been identified as of yet, the Commissioners are looking at "leader states" (those that may influence others), states in which the need for the Act is great, or states in which strong coalitions may be assembled.

The Commissioners do not expect significant action right away. Because 1998 is an even-year session and, as such, is usually shorter than an odd-year sessions is, the Commissioners hope for a few introductions, but not many enactments.

NCCUSL will prepare kits for state legislators about the Act and have them available shortly. I'll keep you posted on any progress.

If you have questions about any of these items, call me at 703-243-3494.