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Back Burner Issue Moves Forward

            Social Security’s funding problem has been on the minds of Washington decision makers over the years, although recently it has not been a priority. The closest thing to a battle cry came in 1999 when former President Clinton declared that the federal budget surplus should be used to “save Social Security first,” but his recommendation failed to ignite concerted action.

Interest in the funding issue has now re-surfaced because President Bush recently appointed a Social Security Reform Commission.  NCTR has resolutions that both directly and indirectly relate to any changes that the Commission may  propose.  This memo will summarize the President’s recent announcement regarding Social Security reform as well as list NCTR’s resolutions that relate to the issue.  (Although it is too early to predict the Commission’s recommendations, NCTR has analyzed how various possible proposals will affect public employers, employees, and retirement systems.  Visit www.nctr.org and see “Implications of Social Security Reform for State and Local Governments, Their Employees, and Their Retirement Systems.”)

President Announces Commission

            On May 2, 2001, President Bush signed an executive order creating a Social Security Commission.  The President explained that the Commission is to report on ways to “strengthen Social Security and make its promise more certain and valuable for generations to come.”

            The 16-member Commission is co-chaired by former Senator Daniel Patrick Moynihan (D-NY) and Dick Parsons, Co-Chief Operating Officer of AOL/Time Warner.  Both Republicans and Democrats are represented among the members and most are business people, academics, or former elected or appointed officials. 

            Former Senator Moynihan is an expert on Social Security, but he is also something of a lightning rod on the issue.  He favors mandatory coverage of state and local government workers.  This stance poses a concern for states, localities, and their employees who do not participate in Social Security.  As described in the next section of this memo, mandatory coverage would be a costly undertaking for those affected by it.  

Mr. Moynihan also advocates the privatization of Social Security through private accounts, as does President Bush.  In fact, the President, in announcing the Commission, said that “Social Security reform must offer private accounts to younger workers who want them.”  His other two goals for reform are preserving “the benefits of all current retirees and those nearing retirement” and returning “the Social Security system to sound financial footing.”

            The Commission must deliver a report by Fall 2001. For a list of the Commissioners click here.

NCTR Supports Measures to Shore Up Social Security and Also Advocates Voluntary Participation

            When the Commission issues its report, NCTR will closely examine its impact on public employers, employees, and retirement systems.  The organization will analyze the Commission’s conclusions through comparing them to the NCTR resolutions on Social Security.  A summary of the resolutions follow:

Principles for Social Security Reform.  NCTR calls upon the President and the Congress to guarantee at least the current level of Social Security benefits, and to ensure the long-term solvency of the trust fund by maintaining the economic security of current and future Social Security beneficiaries.  The organization also advocates the continuation of inflation-adjusted retirement income for beneficiaries, survivors, and disabled workers and their families.

Investment of Trust Fund Assets.  NCTR encourages Congress to invest the trust fund in a diversified portfolio of assets in the public and private markets.  Unlike the President, who favors investment by each worker through an individual account, NCTR advocates investment by an independent board that is well insulated from political interference and includes Social Security beneficiaries as board trustees.  The investment must be made for the exclusive benefit of Social Security beneficiaries. In addition, the investment must be protected from excessive administrative costs. 

Mandatory Social Security Coverage.  Over the years, whenever the discussion of Social Security reform takes place, the issue of “mandatory Social Security coverage” arises.  Under mandatory coverage, all newly hired state and local government employees would have to be covered by Social Security even if they work in jobs not currently covered by Social Security.  (Those jobs are currently covered by a governmental retirement plan only.)  Proponents assert that mandatory coverage will raise a portion of the funding needed to meet the trust fund’s needs.  Opponents argue that the coverage will be costly for affected states, localities, and employees.  NCTR’s membership includes retirement systems whose participants are not covered by Social Security and others whose participants are covered.  Thus, the organization opposes mandatory coverage, but supports voluntary coverage if a referendum of the affected employees is conducted.

Conclusion

We will know the Commission’s recommendations in the Fall.  At that point, we will compare its conclusions with NCTR’s resolutions in order to determine the organization’s response.

Names of Social Security Commissioners

Co-Chairs

·      Daniel Patrick Moynihan (D-former New York Senator and Chairman of the Senate Finance Committee)

·      Dick Parsons (R-Co-Chief Operating Officer of AOL/Time Warner

Members

·      Sam Beard (D-Founder and President of Economic Security 2000)

·      John Cogan (R-Former Deputy Director, Office of Management and Budget under President Reagan)

·      Robert Deposada (R-Executive Director, Hispanic Business Roundtable and President and CEO of ONE Research and Marketing, Inc.)

·      Bill Frenzel (R-Former Minnesota Representative)

·      Estelle James (D-Consultant with the World Bank, former World Bank lead economist in Policy Research Dept.)

·      Robert Johnson (D-CEO of Black Entertainment Television)

·      Gwendolyn King (R-Former SSA Commissioner)

·      Olivia Mitchell (D-Wharton University professor, former co-chair 1994-96 Social Security Advisory Council’s technical panel on retirement savings)

·      Gerry Parsky (R-Former Assistant Secretary of Treasury under   President Ford)

·      Tim Penny (D-Former Minnesota Congressman)

·      Robert Pozen (D-Fidelity Investments)

·      Thomas Saving (R-Texas A&M Director of Private Enterprise Research Center and a Social Security Public Trustee)

·      Fidel Varga (D-Former mayor of Baldwin Park, California and current Vice President of Reliant Equity Investors)

·      Carolyn Weaver (R-Resident scholar at the American Enterprise Institute)